Innovation, Managerial Effort, and Start-Up Performance

Why might management teams decide to be innovative as opposed to selling existing products and services? What factors motivate entrepreneurs to pursue high-tech (vs. low-tech) business opportunities? These questions motivate this paper, which includes a battery of empirical tests based on the theoretical framework of Casamatta (2003) and using a detailed survey of hundreds of managers at start-up companies. We find that serial entrepreneurs - those who have founded other companies before - were significantly less likely to be involved in innovation (defined either as a new product or as a high-tech product). We also find that assistance from venture capitalists and use of new equipment are positively and significantly associated with the choice of a high-technology product, but not with innovation defined as new product development. Management teams with more education are likely to introduce a new product or service (and firms in service industries were more likely to be innovative), but we do not find a comparable result for high-technology industry choice. Larger start-up teams are more likely to be engaged in innovation, defined either as high-tech or new production.What motivates managers to employ external assistance, such as that offered by regional economic development agencies? The most important criteria seem to revolve around socio-economic factors. For example, married couples - who might already possess complementary skills - appear significantly less likely to use such outside assistance, and the portion of whites in the start-up team is also negatively related to the use of external help. The latter finding may indicate the success of government efforts to target minority entrepreneurs.Economic development agencies that promote innovative firms (those that market new or high-technology products or services) may wish to set up special programs to encourage first-time entrepreneurs to start up new firms; they may also benefit from promoting larger management teams that are associated with innovation