Managerial or entrepreneurial capital? Untangling constraints of innovative entrepreneurs

A managerial capital intervention will focus in how to run the current company as efficiently as possible, while an entrepreneurial capital intervention will focus on exploring, validating and capturing market needs and business opportunities. On one hand, if entrepreneurs lack managerial capital, the intervention should help entrepreneurs to implement organizational changes such as the establishment of concrete routines, the creation of specific incentives for employees, or improving inventory management. In contrast, an intervention based on entrepreneurial capital should help founders discover and capture higher value opportunities for their products and services, much like the lean startup method induces founders to come up with new business ideas and converge faster on the viability of their ideas (Leatherbee & Katila, 2020). This can be done by providing entrepreneurs with mentors who have an entrepreneurial mindset (e.g., Sarasvathy, 2001; Busenitz and Barney, 1997) and consulting services oriented towards the exploratory stages (as opposed to the exploitative stages) of business creation.

This experiment aims to answer these questions by implementing a Randomized Control Trial (RCT) in Colombia, in collaboration with the Cali Chamber of Commerce (CCC), the same Institution who executed the program where Gonzalez-Uribe and Reyes (2020) find an impact of entrepreneurial schooling under a no-cash design for young businesses. This RCT will provide entrepreneurs with differential treatments: one aimed at improving management practices and making the established opportunity more efficient (i.e., exploitation), while the other one will be aimed at discovery, validation, capture and scaling of novel opportunities (i.e., exploration).

The main objective of this experiment is to identify what type of non-financial capital has the larger impact on start-up performance (i.e., sales, growth, profits and jobs)? And whether that type differs by innovative level of the business idea, characteristics of the entrepreneur, or stage of development of the firm.

The beneficiaries will receive three main benefits of the program:

1. Training (bootcamps): The main objective of the bootcamps is to provide all participants with the minimum level of knowledge required for their businesses to grow. Each bootcamp is focused on one area of the firm and tries to tackle the main knowledge gaps that have been identified in early-stage entrepreneurs in that area. Below are the details of each bootcamp:

• Business strategy: A workshop will be carried out in which participants will be able to clarify the concept of the business model and will learn to use it as a tool to accelerate growth at an early stage.
• Digital Marketing: A workshop will be carried out, in which participants will adopt tools to develop digital marketing strategies to position their company and obtain more clients.
• Financial Enlistment: The objective of this bootcamp is to provide tools to optimize participants’ financial processes.
• Commercial strategy: A workshop will be carried out in which participants obtain tools to optimize their commercial strategy.
• Market validation: A workshop will be carried out in which participants will check the potential of their value proposition in the market through a theoretical, practical and inspirational process.


2. Support services: The support services are paid services implemented by local and national firms specialized in providing consulting on different areas of the business. Each entrepreneur will be offered 3 hours of support services from a preestablished “menu.” In order to receive them, the entrepreneur will discuss with the program facilitator the areas of the business where they need support, and from that area, a service is selected. Each treatment arm will have available different type of services.


3. Consultancy sessions: Consultancy sessions are hourly sessions where entrepreneurs meet with an assigned expert who provides advice to the participants. Because consultants will most likely differ in their entrepreneurial mindset (some consultants will be stronger in managerial capital, while other consultants will be stronger in entrepreneurial capital), consultants will be separated in two groups: high and low in entrepreneurial mindset. Entrepreneurial mindset will be quantified using a measure of preference towards effectual versus causal behaviors (Sarasvathi, 2001; McKelvie, Chandler, de Tienne, Johansson, 2020; Brettel, Maurer, Engelen, Kupper, 2012).

a. For managerial capital treatment: the consultant will focus on identifying areas of need of the firm and following the table above for managerial capital, the consultant will give advice on what steps need to be taken in order to accomplish the objective set by the treatment/area combination. For example, if the consultant identifies that the area of support most needed by the firm is “Marketing and sales channels”, the objective that the consultant will need to focus is helping the entrepreneur to improve the efficiency of their sales channels. To achieve that goal, the consultant will define an action plan, set indicators, give advice and support, and follow-up with the entrepreneur in the different sessions.

b. For entrepreneurial capital treatment: the consultant will focus on identifying areas of need of the firm and following the table above for entrepreneurial capital, the consultant will give advice on what steps need to be taken in order to accomplish the objective set by the treatment/area combination. For example, if the consultant identifies that the area of support most needed by the firm is “Marketing and sales channels”, the objective that the consultant will need to focus is helping the entrepreneur to create a customer development strategy. To achieve that goal, the consultant will define an action plan, set indicators, give advice and support, and follow-up with the entrepreneur in the different sessions.

2021-12-01

2022-06-10

Short-term outcomes (after the program closure):
• Demo-day score: the pitch score as evaluated by judges in the demo-day (see above for more details on demo-day scores)
• Change in business practices index as measured by surveys
• Change in innovation and openness to new information index as measured by surveys

Primary long-term outcomes (within 1 and 2 years of application):
• Sales as measured by administrative data and surveys
• Business survival as measured by administrative data

Secondary long-term outcomes (within 1 and 2 years of application):
• Profits as measured by surveys
• Number of employees as measured by surveys and administrative data
• Wages as measured by surveys and administrative data
• Change in business practices index as measured by surveys
• Time dedicated to administrative, exploration and exploitation tasks
• Execution of exploration and exploitation activities
• Delegation of organizational tasks
• Change in innovation and openness to new information index as measured by surveys
• Online activity as measured by Alexa
• Number of followers on Linkedin, Twitter and/or Facebook (if it applies to the firm)



Score of the project (used for selection), and program classification of too entrepreneurs

Quality of the business model (innovativeness and scalability)

Characteristics of the entrepreneur and its team (education, sex, labor experience, experience as entrepreneur, and skill)

Initial stage of the firm (measured in terms of sales)

Initial stage of the entrepreneur’s focus (measured in terms if exploration and exploitation focus and activities)

The program will be divided into two stages. It is expected to have at least 154 beneficiary companies, these companies will be randomly divided between the two treatment arms.

1. In the first stage, each startup will receive a basic training program (same for the two treatment arms), weekly follow-ups (different focus depending on treatment arm) and 3 hours of support services (different focus depending on treatment arm). The first stage lasts 5 months.
2. After the first stage is completed, a demo day will be held in front of an evaluation panel that will include high-level executives, investors, and ecosystem leaders, among others.
The highest scoring 77 entrepreneurs of each treatment arm will be selected to go to the second phase of the program, for a total of 154 beneficiaries. This second stage will provide the entrepreneurs with 5 consultancy sessions. The focus of the session and who provides the session will be based on the treatment arm of the entrepreneur. The second stage will last 6 months.

Note: if at the time of program implementation there is a larger budget for more beneficiaries, the same rule of dividing the beneficiaries equally between the two treatment arms would apply.

randomization done in office by a computer

Unit of randomization: firm

No

6 regions of Colombia

At least 154 firms in total

The planned number of firms and clusters is 360 (180 per treatment arm).

After the completion of the first stage, the second stage will include the top scoring 75 firms of each treatment arm (according to the application scores) for a total of 150 firms and clusters.

The minimum detectable effect is $32M COP (with a power of 0.8, and using ANCOVA). The parameters and assumptions we used to produce this estimate are: 1. The revenue within one year of participation for previous cohorts of participants in the program is $107M COP, with a standard deviation of $133M COP (on a baseline revenue of $96M COP). The previous cohorts of participants have been offered services most similar to our managerial capital treatment arm, so we use these numbers as an estimate of the effect in the managerial capital arm of our experiment. 2. The sample size we use is the 360 firms that participate in both the first and the second stage of the experiment. 3. We assume one follow-up and a correlation of 0.6. 4. To replicate the MDE of $32M COP, use the following routine in stata: sampsi 107 139, n1(180) n2(180) sd1(133) pre(1) post(1) r01(0.6). This MDE corresponds to 0.3 standard deviations.