Flexible Institutionalization: On the Role of Managerial Variables in Technology Start-ups

Despite the continuous rise in the establishment of technology-based start-ups (TSUs), the reported statistics indicate high failure rates for these ventures. This has led to a large body of research literature dealing with the identification and assessment of factors affecting TSU performance. Most studies have focused on various business variables or other business areas, including financial aspects, marketing issues, strategic planning, the technological development process, operational and quality management issues, timing of entry, lack of individual knowledge and ability during the founding process (Gartner, Starr, & Bhat, 1999), difficulties in managing the legal aspects, failure to establish and develop the relevant networks with key customers and suppliers (Roure & Maidique, 1986; Roure & Keeley, 1990; Littunen, 2000) and the failure to invest in learning (Schilling, 1998). Very few studies have related TSU performance to the management process during the different stages of development (Vesper, 1980; Van de Ven, Hudson, & Schroeder, 1984; Cooper & Bruno, 1977; McMillan, Zemann, & Narasimha, 1987). Many salient managerial processes, such as institutionalization; formalization of work procedures, timetables or budgets; task differentiation creating formal communication networks; structuring reward and compensation systems; or creating an organizational culture that fits the needs of the growing business organization have been neglected in the existing literature. The purpose of this study is to examine managerial factors affecting the performance of TSUs in Israel, with potentially wide generalizability to TSUs in other contexts. Israeli High-Tech Start-ups: The Research Context: Israel has witnessed a swift and impressive increase in TSU activity, as well as in the scope of equity financing activity. Developments in international high-tech markets and the success of Israeli high-tech firms have driven developments in the local venture capital market and in angel activity. Despite a decline in scope due to the recent downturn in the global markets and the grave political situation, the Israeli high-tech sector is still a very vital one. Measuring TSU Performance: The literature suggests different criteria for defining and measuring start-up performance (Schutjens & Wever, 2000). Performance is often measured by profit, return on investment, or substantial income generation for the entrepreneurs. Other indicators used include added value, growth of turnover, or growth in the number of employees (Schutjens & Wever, 2000), although not all start-ups place expansion among their goals. Frequently, a young venture's performance is operationalized merely in terms of survival (Van Praag, 1999). Subjective measures of new venture performance have also been frequently used, as financial performance measures can be misleading for young businesses, and because of the need for a measure flexible enough to compare performance across numerous industries (Kunkel & Hofer, 1993, p. 8). Moreover, previous findings (Dess & Robinson, 1984) have identified high correlations between objective and subjective performance measures. Hence, in this study performance is measured using subjective perceptions of CEOs regarding various aspects of the performance of their TSUs (survival, financial, technological and marketing performance).