Journal of Management
Vol. XX No. X, Month XXXX 1 –32
© The Author(s) 2020
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Creating New Ventures: A Review and
Dean A. Shepherd
University of Notre Dame
City University of London and University of St. Gallen
Ecole Polytechnique Fédérale de Lausanne
Creating new ventures is one of the most central topics to entrepreneurship and is a critical step
from which many theories of management, organizational behavior, and strategic management
build. Therefore, this review and proposed research agenda are relevant to not only entrepre-
neurship scholars but also other management scholars who wish to challenge some of the
implicit assumptions of their current streams of research and extend the boundaries of their
current theories to earlier in the organization’s life. Given that the last systematic review of the
topic was published 16 years ago, and that the topic has evolved rapidly over this time, an
overview and research outlook are long overdue. From our review, we inductively generated 10
subtopics: (a) lead founder, (b) founding team, (c) social relationships, (d) cognitions, (e) emer-
gent organizing, (f) new-venture strategy, (g) organizational emergence, (h) new-venture legiti-
macy, (i) founder exit, and (j) entrepreneurial environment. These subtopics are then organized
into three major stages of the entrepreneurial process: co-creating, organizing, and performing.
Together, the framework provides a cohesive story of the past and a road map for future research
on creating new ventures, focusing on the links connecting these subtopics.
Keywords: entrepreneurship theory; entrepreneurial/new-venture strategy; entrepreneurial
Corresponding author: Dean A. Shepherd, University of Notre Dame, Mendoza College of Business, Notre Dame,
IN 46556, USA.
900537JOMXXX10.1177/0149206319900537Journal of ManagementShepherd et al. / Creating New Ventures
2 Journal of Management / Month XXXX
The creation of new ventures is the source of most new employment in an economy
(Audretsch & Thurik, 2001), new industries (Schumpeter, 1950), innovations (McKelvie,
Wiklund, & Brattström, 2018), and solutions to both social (Williams & Shepherd, 2016) and
environmental (York, Hargrave, & Pacheco, 2016) problems. However, most management
research begins with the existence of an organization and then attempts to explain heteroge-
neity among organizations in terms of various attributes (e.g., Hillman, Withers, & Collins
2009), forms (e.g., Dunning & Lundan, 2008), and outcomes (e.g., Covin, Green, & Slevin,
2006). Research on starting up a new venture increases our understanding of the creation and
emergence of organizations, which eventually becomes the topic of the majority of manage-
However, there are a number of challenges in researching the starting up of new organiza-
tions. First, there are challenges in sourcing samples for investigation, since researchers need
to identify something before it has been created. Second, many efforts at starting a new ven-
ture are abandoned, and many new ventures are terminated (Ucbasaran, Shepherd, Lockett,
& Lyon, 2013); this compounds the sample selection process and makes research on start-ups
challenging due to potential biases (McGrath, 1999). Finally, traditional measures and
research designs are unlikely to apply to pre- and early-stage organizations, and the introduc-
tion of new measures and designs are typically considered high-risk research. While these
challenges do not undermine, and they may actually reflect, the value of the opportunity to
research new-venture creation, they have resulted in multiple, fragmented streams of
research. Consequently, current research does not yet provide a cohesive body of knowledge
to act as a foundation of, to link with, and to inform the substantial literature on established
In this article, we review research on the starting up of a new organization, organize the
information into an overarching framework, and use the framework to propose opportunities
for future research. In the following sections, we first detail our method for paper selection.
Second, we review the papers based on 10 inductively generated subtopics and three over-
arching themes. Third, we offer a research agenda primarily based on connecting the key
constructs highlighted in our review.
Method for Systematic Review
We conducted a systematic review by first selecting keywords, journals, and a period for
the investigation. Because we wanted the initial search to be broad, we searched for the key-
words “new firm,” “new venture,” “new business,” “start*,” “found,” “create,” and “launch.”
We searched in the top management (i.e., Academy of Management Journal, Academy of
Management Review, Administrative Science Quarterly, Strategic Management Journal,
Organization Science, Journal of Management, and Journal of Management Studies) and the
top entrepreneurship journals (i.e., Journal of Business Venturing, Entrepreneurship Theory
and Practice, and the Strategic Entrepreneurship Journal). The time span for the search was
2013 to 2019, because the last review of new-venture creation was conducted in 2003 (Shook,
Priem, & McGee, 2003). This initial search led to 346 papers.
We then read each paper to assess whether the paper should be included in the review and
began to categorize the papers. We excluded 194 papers for several reasons. First, consistent
with other reviews, we excluded papers that were commentaries, introductions to special
Shepherd et al. / Creating New Ventures 3
issues, review papers (including meta-analyses), replications, research method papers, retrac-
tions, and teaching cases (n = 44). Second, because we decided to take a management per-
spective, we excluded papers that were not at the individual-, team-, or organization- level of
analysis, such as sociological studies of populations, economic studies at the national and
regional levels of analysis, and studies of rates of new-venture creation (n = 82). Third,
because there are differences between new independent ventures and new corporate ventures
(i.e., differences between de novo and de alio ventures; Carroll, Bigelow, Seidel, & Tsai,
1996) and our interest lies in starting up from scratch, we excluded papers that focused on
corporate entrepreneurship, spin-offs, and portfolios of ventures (n = 25). Finally, we
excluded papers on topics not directly about the start-up of a new venture, such as papers
focused on opportunity, self-employment, ventures beyond their earliest stages, venture
funding (which often relates to scaling rather than starting a venture), and other topics (n =
93). After these exclusions, we fully reviewed the remaining 143 papers.
We inductively categorized the relevant papers into 10 categories: (a) lead founder, (b)
founding team, (c) social relationships, (d) cognitions, (e) emergent organizing, (f) new-
venture strategy, (g) organizational emergence, (h) new-venture legitimacy, (i) founder exit,
and (j) entrepreneurial environment. We further organized these categories into an overarch-
ing framework (Figure 1) that provides coherence to the review and offers a visual
Illustration of Prior and Proposed Research on Starting Up New Ventures
4 Journal of Management / Month XXXX
representation of where future research can make important contributions to our knowledge
of starting up new ventures. As illustrated in Figure 1, there are three major stages of starting
up a new (independent) venture—co-creating a start-up, organizing a start-up, and perform-
ing a start-up. In the co-creating stage a lead entrepreneur typically forms a founding team,
and this group uses its social relationships and cognitions to engage in co-constructing a new
venture with its community of inquiry—an informal body of stakeholders with a shared
interest in a potential opportunity (Autio, Dahlander, & Frederiksen, 2013; Shepherd,
2015)—and begins to attract potential stakeholders. In the organizing stage, the new venture
establishes operational activities and formulates and enacts a strategy that, along with the
founding team, the community of inquiry, and the external environment, impact the critical
outcomes of legitimacy, organizational emergence, and founder exit. In the performing stage,
the outcomes from the previous stage are interrelated such that the organization’s emergence
facilitates legitimacy and founder exit, and these outcomes feed back into the other stages of
the model. All stages are influenced by, and influence, the external environment.
Co-Creating a Start-Up Venture
Lead founder and starting up a new venture. A founder refers to a person who creates a
venture, that is, facilitates the emergence of a new venture. Even in case of ventures created
by a team, individual founder attributes are important for new-venture creation, especially
the attributes of the lead founder (Wasserman, 2017), who is the member of the founding
team most responsible for managing the start-up process. The literature informed us that
founders are heterogeneous in experiences, employment position, entrepreneurial imagina-
tiveness, motivation and identity, affective responses, and enduring characteristics. These
varying founder attributes affect new-venture creation, as we describe next.
First, start-ups are founded by individuals with specific experiences, and these experi-
ences are varied, as are their impact on the starting up of new ventures. For example, for the
creation of a new venture, a founder with managerial experience—knowledge about operat-
ing a business—is particularly valuable in the pursuit of opportunities in highly dynamic
external environments, whereas a founder with industry experience—having previously
worked in the same industry as the new venture—is particularly valuable in the pursuit of
opportunities in less dynamic external environments (Dencker & Gruber, 2015).
Entrepreneurial experience also appears to be an important attribute for founders. For exam-
ple, Forbes (2005) found that founders who had previously started another venture (and those
who were older) were quicker in making decisions and committing their venture to action
than were founders without entrepreneurial experience (and those who were younger). While
most studies of the implications of entrepreneurial experience do not consider the level of
success associated with those experiences, one study found that new ventures created by
founders with entrepreneurial experience performed better (in terms of survival time) than
founders without entrepreneurial experience, regardless of whether the prior experience was
with a successful or a failed venture.
However, founder experience is not necessarily an unambiguous blessing; a founder’s
experience with a product market, geographic market, or resource will focus his or her atten-
tion toward those domains and perhaps remain blind to other opportunities and possibilities
beyond these domains (Fern, Cardinal, & O’Neill, 2012; Gruber, MacMillan, & Thompson,
2013; Shepherd, McMullen, & Ocasio, 2017). Similarly, although individuals returning from
Shepherd et al. / Creating New Ventures 5
another country to their home country to start a business have different experiences from
those who never left their home country (and a higher stock of initial social capital;
Prashantham & Dhanaraj, 2010), it appears that founders with this experience abroad were
slower at the initial stage of the entrepreneurial process—from initial conception of the
potential idea to the launch of the new venture to exploit it—than those founders without
such experience (Qin, Wright, & Gao, 2017). Moreover, Levesque and Minniti (2006) pro-
posed that there is a positive relationship between age and starting a new venture up to a
point—an age threshold—after which further increases in age are associated with a decreased
likelihood of starting a new venture.
Second, founders can arise from employee entrepreneurship—“the intra-industry found-
ing of a new venture by an individual who previously worked for an incumbent firm [a firm
in the same industry as the startup]” (Ganco, 2013: 666). In employee entrepreneurship, the
extent to which the new venture’s knowledge domain overlaps with the knowledge domain
of the founder’s previous employer can benefit the new venture in the transfer of effective
routines and the recognition of subsequent potential opportunities (although there is evidence
of diminishing returns, and perhaps even negative returns, to the new venture from consider-
able overlap with the founder’s previous employer) (Basu, Sahaym, Howard, & Boeker,
2015). Although it seems that it would be the star performers who leave employment to
found their own firm, the relationship is more complex. Star performers are more likely to
leave employment to start their own firm when the employer has a low compensation disper-
sion system (Carnahan, Agarwal, & Campbell, 2012). High-earning individuals (i.e., star
performers) are actually less likely to leave their employer than low earners, but if they do
leave, they are more likely to start their own venture (the low earners seek employment else-
where; Campbell, Ganco, Franco, & Agarwal, 2012). Moreover, leaving employees are more
likely to start their own venture, rather than seek employment elsewhere, when the knowl-
edge they have obtained is more complex, that is, there are many interdependencies between
the knowledge components such that a change in one component impacts the way another
component works (Ganco, 2013).
Third, people with entrepreneurial imaginativeness are more likely to start up a new ven-
ture because “entrepreneurs come to imagine the opportunity for novel ventures” (Cornelissen
& Clarke, 2010: 539). Entrepreneurial imaginativeness refers to “a cognitive skill that com-
bines the ability of imagination with the knowledge needed to stimulate various task-related
scenarios in entrepreneurship (Kier & McMullen, 2018: 2266). This cognitive skill is useful
in new-venture creation because it helps to recognize or stimulate the construction of a poten-
tial opportunity, which can be tested and refined as the basis of a new venture (Dimov, 2007;
Shepherd, Haynie, & McMullen, 2012). Perhaps some of the knowledge needed to create the
various scenarios for entrepreneurial imaginativeness comes from the managerial, industry,
entrepreneurial, and employment experiences detailed previously.
Fourth, an individual needs to be motivated to found a new venture, which is often
reflected in the founder’s identity and passion. Farmer, Yao, and Kung-Mcintyre (2011: 246)
explored founders’ entrepreneurial identity aspiration—“a possible but unrealized future
entrepreneurial self”—and found that those who had a stronger entrepreneurial identity aspi-
ration engaged in more nascent entrepreneurial behaviors and even more so for founders who
had prior start-up experience than those who did not have such experience. It has been pro-
posed that there are three ideal types of entrepreneurial social identity that help explain the
logic and actions of the new ventures created (Fauchart & Gruber, 2011): (a) The Darwinian
6 Journal of Management / Month XXXX
identity reflects founders who consider themselves unique, put their self-interest at the core
of the new venture, pursue private goals, and use a conventional business logic to run the new
venture; (b) the communitarian identity reflects founders who focus their actions based on a
proximal social group and have a community-driven logic; and (c) the Missionary identity
reflects founders who have a highly inclusive notion of stakeholders, focus on the society at
large, and have a mission-driven logic.
Founders also have entrepreneurial passion, which acts to motivate the new-venture cre-
ation process. Entrepreneurial passion is an “intense positive inclination towards entrepre-
neurial activities salient to an individual’s identity . . . we do not conceptualize passion as a
trait but rather as an affective and motivational phenomenon that an entrepreneur experiences
when engaging in identity relevant activities” (Murnieks, Cardon, Sudek, White, & Brooks,
2016: 470). This passion provides the motivation for an individual to perform the tasks
required to create a new venture. Indeed, entrepreneurial passion contributes to higher entre-
preneurial self-efficacy, which strengthens the intention to start up a new venture (Huyghe,
Knockaert, & Obschonka, 2016). Interestingly, obsessive scientific passion—an identity con-
nection with the scientific role—has an indirect negative relationship to start-up intention,
that is, obsessive scientific passion leads to a strong affective commitment to the individual’s
current organization and thus weakens the intention to start up a new venture (Huyghe et al.,
Fifth, the founder’s affect (e.g., positive emotions) plays a role in starting up a new ven-
ture. For example, positive dispositional affect facilitates creativity, and creativity generates
innovative outputs during the new-venture creation process; the strength of both these rela-
tionships depends on the dynamism of the external environment (Baron & Tang, 2011).
Positive dispositional affect refers to the founder’s general tendency to experience positive
emotions, such as enthusiasm and excitement (consistent with George & Zhou, 2002) and,
unlike positive state affect, is relatively enduring across time, contexts, and situations.
However, a founder’s positive dispositional affect may not always lead to positive outcomes.
Baron, Hmieleski, and Henry (2012) proposed that positive dispositional affect has an
inverted u-shaped relationship with performance on many of the tasks related to new-venture
creation, such as opportunity recognition, opportunity evaluation, and entrepreneurial deci-
Finally, individuals’ personalities can help explain those who found a new venture.
Specifically, in investigating the leaders of both high-tech start-ups and established firms,
Peterson, Walumbwa, Byron, and Myrowitz (2009) found that the positive psychological
traits of hope, optimism, and resilience have a positive association with the transformational
leadership of the founder, which in turn had a positive relationship with firm performance.
The positive psychological trait of hope refers to the perception that they have a path to a
desired end goal and the agency to move down that path (Huang, Souitaris, & Barsade, 2019;
Peterson et al., 2009), optimism refers to a generalized belief that good things will happen
(Scheier & Carver, 1985), and resilience refers to the capacity to maintain positive function-
ing in the face of adverse events (Bonanno, 2005). Transformational leadership, the outcome
of these positive psychological traits, has a positive impact on the performance of new ven-
tures and involves four attributes: (a) idealized influence, in which the founder’s followers
identify with the founder and try to emulate him or her; (b) inspirational motivation, in which
the founder is able to provide a strong vision of the future that motivates followers; (c) intel-
lectual stimulation, in which the founder enables followers to make the most of their
Shepherd et al. / Creating New Ventures 7
potential; and (d) individualized consideration, in which the founder helps followers to meet
their individualized needs for personal growth (Peterson et al., 2009). Personality can also be
bundled with personal resources and the environment to explain activities and challenges in
the new-venture creation process (Korunka, Frank, Lueger, & Mugler, 2003). Specifically,
the founders’ tendencies to value “change, the new, and the different” (i.e., novelty) posi-
tively impact firm performance and more so for those firms that are younger and smaller
(Ling, Zhao, & Baron, 2007).
Founding teams and starting up a new venture. A founding team refers to a group of indi-
viduals who collectively create a venture. Founding teams have often varied experiences, are
diverse in different attributes, sometimes have prior shared experience, and are influenced
First, founding teams differ in the level and nature of their experiences, which impacts the
process of starting a new venture. For example, for newly created venture capital firms, those
that had top management teams with greater experience in venture capital, senior manage-
ment, and consulting were more successful than their inexperienced counterparts (Walske &
Zacharakis, 2009). Moreover, in assessing top management teams of new ventures, senior
venture capitalists emphasized, first, the team’s industry experience; second, its level of man-
agement education; and third, the team’s leadership experience (Franke, Gruber, Harhoff, &
Henkel, 2006). Another study also confirmed that teams with greater entrepreneurial and
management experience were able to identify a greater number of market opportunities
(Gruber, MacMillan, & Thompson, 2012). It also appears that founding teams that have
financial management competence—skills, experience, and ability to overcome resource
constraints—are better able to overcome obstacles to new-venture creation and growth
(Brinckmann, Salomo, & Gemuenden, 2011). Furthermore, new-venture teams with greater
technological experience magnify the positive relationships between, first, the diversity of
their industry experience and, second, the number of external sources of knowledge tapped
with the variety of potential opportunities that they can identify (Gruber et al., 2013).
Second, diversity is important in founding teams. For example, team diversity in educa-
tion background is beneficial (Gruber et al., 2012), and venture capitalists value educational
heterogeneity, so long as one of the members has management education (Franke et al.,
2006). Despite widespread knowledge of the importance of heterogeneity in the founding
team (Bruton, Fried, & Hisrich, 1997; Kim & Aldrich, 2005; Leung, Der, Foo, & Chaturvedi,
2013), it appears that founders’ biased decision making—overoptimism and self-serving
attributions—leads them to choose cofounders that have similar beliefs, values, and status,
thus creating a homophilious founding team (Parker, 2009). However, we have some evi-
dence that more diversity in the founding team might not always be a good thing. For exam-
ple, dispersion of ability within the founding team has an inverted u-shaped relationship with
start-up performance (Hoogendoorn, Parker, & Van Praag, 2017). Also, while diversity
enhances performance in a competitive commercialization context, it does not appear to do
so in a cooperative community environment nor in the pursuit of an innovation strategy; in
such contexts, a technically focused management team performs better (Eesley, Hsu, &
Roberts, 2014). Interestingly, new-venture emergence is facilitated by new-venture teams
that involve a couple (i.e., a spouse) but obstructed by teams that contain biological linkages;
this negative biological effect is less negative when financial investment is low (Brannon,
Wiklund, & Haynie, 2013).
8 Journal of Management / Month XXXX
Finally, founding team members that have prior shared experience are well positioned to
manage some of the challenges of starting up a new venture. New ventures managed by a
team in which some of the members have previously worked together in the same company
have a shared understanding that promotes implementation speed (Beckman, 2006) and
overall performance but less so when the shared experience is for a task or industry different
from the new venture’s tasks and industry and less so as the founding team gains its own
shared operating experiences (Zheng, Devaughn, & Zellmer-Bruhn, 2016). Relatedly, Leung
et al. (2013) found that founding teams with shared prior experience were able to create a
human resource value system for the new venture that was internally consistent, which
enabled the building of shared collective perceptions, attitudes, and behaviors among the
organizational members. Diverse founding teams in which members have also previously
worked together are more likely to pursue an exploration strategy, change the venture’s
founding idea, and grow more quickly (Beckman, 2006).
A mechanism underlying the importance of the prior shared experience and the accumu-
lated operating experiences shared by the founding team is the development of a transactive
memory system. A transactive memory system refers to the sum of the individual knowledge
and shared understanding of where expertise among team members exists (Lewis, 2003;
Moreland & Myaskovsky, 2000)—that is, “who knows what” (Zheng, 2012). There is a posi-
tive relationship between the founding team’s transactive memory system and new-venture
performance, which is magnified by task similarity—the perceptual closeness of tasks—and
intrateam trust—the shared perception of trust among team members (Zheng, 2012). The
founding team’s transactive memory system can also spur an entrepreneurial orientation—
the propensity for the new venture to be innovative, risk taking, and proactive (Covin &
Slevin, 1991)—and this positive relationship is magnified by the intratrust of the founding
team, the organicity of the organizational structure, and the dynamism of the external envi-
ronment (Dai, Roundy, Chok, Ding, & Byun, 2016).
Social relationships and starting up a new venture. A social relationship refers to a posi-
tive interpersonal association—a tie between two or more people. Social relationships are
reflected in (a) the nature of a founder’s social network, (b) the social capital embedded in
the founder’s network, (c) the intangible resources that founders can access via their network,
and (d) the interpersonal interactions within the new venture.
First, founders’ relationships are represented by social networks, and the nature of these
social networks varies across founders and founding teams. The network contacts of found-
ers are perceived to be greater when the network contact offers greater resource multiplic-
ity—“the simultaneous, prospective availability of multiple resources”—and the benefits of
resource multiplicity are magnified by both age-based and gender-based interpersonal simi-
larity between the founder and the resource provider (Grossman, Yli-Renko, & Janakiraman,
2012: 1765). Important people in a founders’ network are the referrer (i.e., the person who
connects an entrepreneur with a resource owner) and the ultimate resource owner. Specifically,
founders’ likelihood of acquiring resources are higher when (a) the tie between the referrer
and the resource owner is strong, especially when the tie between the founder and referrer is
also strong, and (b) the referrer and the resource owner have high prior knowledge of the
venture’s technology or product (Zhang, Soh, & Wong, 2010). Interestingly, the resource
owner’s poor prior knowledge compensates for weak ties between the founder and the refer-
rer and between the referrer and the resource owner (Zhang et al., 2010).
Shepherd et al. / Creating New Ventures 9
Engel, Kaandorp, and Elfring (2017) go one step further and conceptualize entrepreneur-
ial networking not as a mere facilitator of entrepreneurial action but as a part of this action.
Specifically, entrepreneurial networking is portrayed as an agentic behavior under high
uncertainty and includes assessment of the available means within the existing network of
ties, negotiating precommitments with stakeholders, and constantly changing the portfolio of
ties committed to the venture. Although it would seem that the larger the founders’ network,
the better it is for the venture, there appear to be diminishing marginal returns to network size
in access to funding, information, and business contacts (Semrau & Werner, 2014). Over and
above the size of the network, other important factors in relationship quality (i.e., stronger
ties) are trust and commitment, both of which facilitate access to resources under favorable
terms (McFadyen & Cannella, 2004; Semrau & Werner, 2014; Steier & Greenwood, 2000).
Indeed, both the social network size and the relational capital (strength of the ties) were
found to be positively related to progress in the new-venture creation process (De Carolis,
Litzky, & Eddleston, 2009). Importantly, new ventures also benefit from founder networks
that are heterogeneous and high in status (Zheng, Liu, & George, 2010). A heterogenous
network provides access to more diverse information and resources, and a high-status net-
work is an important social cue signaling the quality of the venture.
Second, founders can benefit from social capital (i.e., the goodwill created through social
relations; De Carolis et al., 2009), and this social capital can have a variety of sources and
benefits. For example, founders experienced with global markets (as a returning migrant or
via experience with a multinational enterprise) typically have a higher stock of initial social
capital than founders without global-market experiences (Prashantham & Dhanaraj, 2010). It
appears that an important source of social capital is the family. Founders seek initial funding
from their family rather than from other investors when they anticipate low levels of family
interference in the business (Au & Kwan, 2009). This shows that there are benefits (e.g.,
easier access to capital) and costs (e.g., potential interference) that arise from relying on fam-
ily relationships in creating the new venture. Another study also captured the apparent trade-
offs that founders face with regard to involving their family in starting up a business.
Edelman, Manolova, Shirokova, and Tsukanova (2016) found that the scope of start-up activ-
ities was narrower with the involvement of family financial capital but broader with higher
family social capital. Interestingly, the benefits of family social capital (for the scope of start-
up activities) were magnified by family cohesiveness. Family involvement in the governance
of early-stage new ventures has also been associated with higher probability of raising debt
funding and with the amount of funding obtained (Edelman et al., 2016).
Third, founders’ social relationships can provide intangible resources. For example,
close ties can provide entrepreneurial inspiration for the founder (Souitaris, Zerbinati, &
Al-Laham, 2007), which can enhance the chances of new-venture survival, especially when
founders take over an existing business, spend considerable time on their business, and lack
prior entrepreneurship experience (De Jong & Marsili, 2015). Another intangible resource
stemming from social relationships is guidance. Guided preparation—that is, using assis-
tance from an outside advisor to start up the venture—has an inverted u-shaped relationship
to new ventures’ long-term growth (Chrisman, McMullan, & Hall, 2005). That is, long-term
growth increases with the amount of guided preparation to a point, and thereafter, more
guided preparation is associated with less long-term growth. A similar form of help to guid-
ance, also derived by social relationships, is help from venture advocates. Venture advo-
cates are “local venture-community members, as potential stakeholders, that help founders
10 Journal of Management / Month XXXX
in the developmental stages of emerging enterprises” and have been found to be positively
associated with a new venture’s likelihood of launch and survival (Saxton, Wesley, &
Saxton, 2016: 108).
Finally, social relationships occur within the structure of the new venture, for example,
among directors. New ventures are able to establish more quickly a diverse alliance portfolio
when their board of directors is heterogeneous (i.e., directors have diverse backgrounds and
networks), multiplex (i.e., directors form multiple types of relationships), and symmetrical
(influence is evenly distributed) (Beckman, Schoonhoven, Rottner, & Kim 2014). However,
these benefits of the board members’ social relationships are undermined when central inves-
tors come to dominate the board (Beckman et al., 2014). What seems to be important is that
members of the board of directors provide network relationships for the founding team. This
enhanced network (of the board and founding team) is a source of relational pluralism—the
extent to which a firm derives its meaning and possibility of action from other entities (Gulati,
Kilduff, Li, Shipilov, & Tsai, 2010).
Cognitions and starting up a new venture. Founders’ cognitions refers to the mental oper-
ations underlying the co-construction of potential opportunities for starting up a new venture.
We review our understanding on founders’ cognitions in terms of being driven by enduring
characteristics and by perception and judgment of information, and in terms of leading to
biased decision making, the identification of potential opportunities, and from entrepreneur-
ial intention to action.
First, founders’ cognitions can be driven by relatively enduring characteristics—intelli-
gence and cognitive style. Baum and Bird (2010) proposed that there is a form of intelligence
that is critical for success in new-venture creation, which they call successful intelligence.
Successful intelligence (when combined with entrepreneurial self-efficacy) is proposed to
lead to swift actions that promote improved performance. This intelligence for new-venture
creation consists of three different types of intelligence: (a) practical intelligence, which is
“the experience-based accumulation of skills, dispositions, tact knowledge, and the ability to
apply some to solve everyday problems”; (b) analytical intelligence, which is the “ability to
learn, remember, and retrieve information quickly”; and (c) creative intelligence, which is
the “ability to generate high quality novel ideas that meet the needs of a task or context”
(Baum & Bird, 2010: 399-400).
Another enduring attribute of founders that influences their cognitions is cognitive style.
Cognitive style is a “higher-order heuristic that individuals employ when they approach,
frame and solve problems” (Brigham, De Castro, & Shepherd, 2007: 31). People with differ-
ent cognitive styles were confident for different tasks within the entrepreneurial process.
Those who have a more intuitive cognitive style are more likely to observe signals and pro-
cess information in a synthetic and holistic way (Olson, 1985); hence, they reported greater
confidence in the new-venture creation tasks of identifying and recognizing opportunities
(Kickul, Gundry, Barbosa, & Whitcanack, 2009). In contrast, individuals with an analytical
cognitive style process information in a more linear and sequential way (Allinson & Hayes,
1996) and report greater confidence in undertaking the venture creation tasks of assessing,
evaluating, planning, and marshaling resources (Kickul et al., 2009).
Second, entrepreneurial cognitions are informed by founders’ perception and judgment of
information. Perception and judgment are related in terms of the founder’s cognitive model.
Indeed, a founder’s judgment is based on the “shape and strength of the entrepreneur’s causal
Shepherd et al. / Creating New Ventures 11
map” (i.e., perceptions) about achieving success in venture creation (Uygur & Kim, 2016:
186). Uygur and Kim (2016) propose that engaging in formal business planning facilitates
entrepreneurial judgment because it helps founders to (a) become more selective in their
decision making—refine the causal map to a smaller set of new venture success factors; (b)
become more decisive—make venturing decisions more quickly; and (c) have greater con-
viction—have faith in their entrepreneurial judgment.
Third, founders’ cognitions can lead to biased decision making. Indeed, founders exhibit
greater overconfidence than new-venture managers who did not found the business (Forbes,
2005). Overconfidence refers to an individual’s overstatement of the correctness of their
responses to difficult questions—they “do not know what they don’t know” (Forbes, 2005:
624)—which can be detrimental to venture creation efforts (Hayward, Shepherd, & Griffin,
2006). Indeed, Hyytinen, Lahtonen, and Pajarinen (2014) found that founders were overly
optimistic when forecasting the survival of their venture. However, confidence in one’s capa-
bilities to successfully perform entrepreneurial tasks is a robust predictor of the start-up of a
new venture (Townsend, Busenitz, & Arthurs, 2010).
Founders can also escalate commitment (money and time) to a venture that is bound to
fail, which is obviously a biased decision. Huang et al. (2019) found that hope drives escala-
tion of the founding team’s commitment to a failing venture, whereas fear leads to quitting
that venture. Interestingly, when hope and fear were felt together, hope “trumped” fear, and
the founding team kept escalating commitment.
Fourth, a key application of entrepreneurial cognition is the identification of potential
opportunities. Indeed, Edelman and Yli-Renko (2010) found that entrepreneurs’ subjective
perception of opportunity mediates the relationship between the objective characteristics of
the environment (i.e., environmental munificence) and the individual’s effort to start a new
venture. These cognitive perceptions of a potential opportunity have a number of character-
istics from a structuration perspective (i.e., the entrepreneur, the social system, and the poten-
tial opportunity coevolve and co-construct; Seyb, Shepherd, & Williams, 2019): (a)
entrepreneurial opportunities, which emerge through the interaction of the entrepreneur and
a community of inquiry (Shepherd, 2015); (b) opportunity objectification, which refers to
“the attribution of objective reality to an opportunity idea, so that the idea begins to be seen
as an entity outside the observers mind” (Wood & McKinley, 2010: 70); (c) opportunity
enactment, wherein the establishment of the new venture is often characterized as the deliv-
ery of the first product or service; and (d) opportunity abandonment, which involves the
founder deciding not to pursue any further the particular potential opportunity and redirect-
ing his or her attention elsewhere.
The structuration approach to the cognition related to potential opportunity relies on the
inputs of others (Alvarez, Young, & Woolley, 2015; Seyb et al., 2019). Who those others are
also seems to matter in the cognitive process. For example, if a founder perceives that they
are socially isolated from important actors, such as other entrepreneurs (a concept called
social distance), then the interactions over a potential opportunity are perceived more
abstractly, and thus, venture creation is perceived to be less likely to occur (vis-à-vis lower
social distance and more concrete perceptions of the potential opportunity and new venture
emergence) (H. Chen, Mitchell, Brigham, Howell, & Steinbauer, 2018). Of course, the
founder perceives not only opportunities but also threats during the start-up process. A threat
can cause stress and cognitive response through efforts to cope—avoidance coping and
active coping. Avoidance coping involves taking respite from the threat by temporarily
12 Journal of Management / Month XXXX
withdrawing from the situation or otherwise focusing on something else (Carver, Scheier, &
Weintraub, 1989). Active coping involves directly addressing the threatening situation head-
on by doing something to resolve the problem. Avoidance coping on its own and in conjunc-
tion with active coping can facilitate the entrepreneur’s psychological well-being (Uy, Foo,
& Song, 2013).
Finally, founders’ cognitions lead to intentions for actions critical to the process of starting
up a new venture. In this case, the actions are the startup activities for organizational emer-
gence. The extent of the time, effort, and other resources an individual invests in start-up
activities depends on the individual’s intention—readiness to perform a given behavior
(Ajzen, 1991), which in turn depends on the founders’ attitudes toward that behavior—the
favorability of taking action, the perceived behavioral control (i.e., the ease or difficulty in
performing the action), and the subjective norms (i.e., the opinions of a social reference
group about engagement in the focal actions) (Kautonen, van Gelderen, & Fink, 2015;
Souitaris, Zerbinati, & Al-Laham, 2007). In this way an entrepreneurial intention involves a
cognitive commitment toward actions to create a venture, and these intentions can be stimu-
lated by inputs from and perceptions of the environment. For example, attending an entrepre-
neurship program (an input from the environment) raises the intentions of science and
engineering students to start a business (Souitaris, Zerbinati, & Al-Laham, 2007). And found-
ers’ perceived market heterogeneity strengthens their entrepreneurial intention because the
diversity and breadth of the market provides potential opportunities for those who are inno-
vative, proactive, and willing to take risks to create value (Fini, Grimaldi, Marzocchi, &
Sobrero, 2012). The motivation to start up a new venture and the start-up decision-making
expertise reinforce each other to promote the entrepreneur’s perception that they will achieve
new-venture success (Mitchell, Mitchell, & Smith, 2008). However, a prosocial motiva-
tion—the desire to expend effort and other resources to help another person (Batson, 1987;
Grant, 2008)—appears to slow down venture emergence in terms of assembling key
resources, achieving first sale, raising external funding, and so on (Renko & Freeman, 2017).
Organizing the Start-Up of a New Venture
Emergent organizing and starting up a new venture. Emergent organizing refers to the
development of processes for configuring connections and activities to enhance the reliabil-
ity and effectiveness of operations. Emergent organizing involves improvisation and engage-
ment in activities critical to starting up a new venture and different (and dynamic) modes of
organizing and is influenced by founders’ decision-making logic.
First, founders engage in actions to create new ventures, such as improvisation, and key
activities for the start-up process. The initial inspiration for the new venture may come from
improvisation. Improvisation involves the fusion of design (e.g., planning) and action (i.e.,
emergent behaviors; Cunha, Kamoche, & Cunha, 2003; Weick, 1998) or, stated differently,
“the deliberate extemporaneous composition and execution of novel action” (Hmieleski &
Corbett, 2008: 484). It seems that founders’ improvisational behaviors facilitate new-ven-
ture performance (i.e., sales growth) for those founders with high entrepreneurial self-effi-
cacy but diminish new-venture performance for those founders with low entrepreneurial
self-efficacy (Hmieleski & Corbett, 2008). Regarding specific key activities in the new-
venture creation process, Mueller, Volery, and Von Siemens (2012) found that founders at
start-up focused mostly on exchanging information and opinions (36% of work time) and on
Shepherd et al. / Creating New Ventures 13
engaging in more analytical and conceptual work (26% of work time). These efforts in start-
up focused on four key business functions: (a) human relations, (b) marketing (including
sales and public relations, (c) administration, and (d) environmental monitoring (Mueller
et al., 2012).
Second, different modes of organizing feed into each other, but organizational emergence
is not linear or sequential (Brush, Manolova, & Edelman, 2008; Lichtenstein, Carter, Dooley,
& Gartner, 2007). Lichtenstein, Dooley, and Lumpkin (2006) identified three general modes
of organizing, namely, vision (i.e., identifying the opportunity), strategic organizing (i.e.,
making major decisions), and tactical organizing (i.e., behaviors). The three modes of orga-
nizing are closely interrelated. Interestingly, an emergence event is stimulated by a change in
tactical organizing first, which stimulates strategic organizing, which in turn stimulates a
change of vision (Lichtenstein et al., 2006).
Finally, organizational emergence can be influenced by the founders’ logic—causation
and effectuation. Effectuation is based on four primary principles: (a) The affordable loss
principle proposes that rather than relying on the expected return of actions (consistent with
causation), entrepreneurs can focus on opportunity pursuit vis-à-vis how much they can
afford to lose by taking this action. (b) The alliance principle proposes that rather than con-
ducting competitor analyses (consistent with causation), the founder can enter into strategic
alliances to gain precommitments from (potential) stakeholders. (c) The contingency princi-
ple proposes that rather than relying on preexisting knowledge (consistent with causation),
the founder can remain open to, and exploit as an opportunity, unexpected events. (d) The
control principle that proposes that rather than trying to predict an uncertain environment,
the founder takes stock of his or her means and seeks to create possible ends from known
means (Sarasvathy, 2001). These effectuation principles can provide a response to environ-
mental uncertainty; that is, while there is uncertainty about the external environment, there is
perceived certainty internally about the new venture’s ability to respond to external changes
(Jiang & Rüling, 2019). It appears that founders are more likely to use a causal logic when
their previous career emphasized planning (i.e., an implicit assumption that the external envi-
ronment is predictable) and more likely to be effectual when the founder came from a career
that involved investing (Engel et al., 2017). Moreover, experts are more likely to use effec-
tuation in an entrepreneurial context, while novices are more likely to use causation (Dew,
Read, Sarasvathy, & Wiltbank, 2009).
Importantly, founders can engage both a causal and an effectual logic. Changes in the
decision-making logic appear to be driven by the founders’ scoping decisions (how broad is
the search for a potential opportunity to pursue; Klingebiel & Adner, 2015), triggered by
changes in the external and/or internal environment of the new venture (Reymen, Andries,
Berends, Mauer, Stephan, & van Burg, 2015). By narrowing the scope of opportunity search,
founders were more willing to engage in causation and achieve efficiencies, whereas an
increase in the scope meant that founders were more likely to use effectuation and thus be
more creative and experimental (Reymen et al., 2015).
Furthermore, effectuation involves gaining the precommitment of potential stakeholders
(Sarasvathy, 2001), who provide the effectual founder resources and legitimacy for their new
ventures (Akemu, Whiteman, & Kennedy, 2016). Precommitment of stakeholders is assisted
by boundary objects, which are material artefacts representing the beliefs and values of the
founder (e.g., an engineering drawing or a project timeline), “agreed and shared between
communities of practice” (Akemu et al., 2016: 872). Boundary objects serve to connect
14 Journal of Management / Month XXXX
loosely coupled actors across multiple domains to advance the new venture (see Nicolini,
Mengis, & Swan, 2012; Yakura, 2002). Therefore, the founders’ discursive and symbolic
practices to share, frame, and interact over boundary objects is critical for the emergence of
new ventures (Seyb et al., 2019).
New-venture strategy and starting up a new venture. New-venture strategy refers to the
formulation, choice, and/or enactment of a particular strategic setup and direction, with the
venture’s business model being a key element. The business model refers to a description of
the future venture and how it will function to achieve its goals (for more discussion on busi-
ness models, see Massa, Tucci, & Afuah, 2017). New-venture strategy involves planning,
diversification, resource orchestration, entry mode, and innovativeness.
First, planning impacts the starting up of new ventures (Dencker, Gruber, & Shah, 2009).
Specifically, completing a formal plan increases the likelihood of new-venture viability
(early-stage profitability; Greene & Hopp, 2017) and enhances performance in terms of
employment growth (Burke, Fraser, & Greene, 2010) and survival (when the plan is formed
before speaking to customers or engaging in other organizing actives; Shane & Delmar,
2004). It appears that the founders most likely to plan are those who are better educated and
oriented toward growth, innovation, and external finance (Brinckmann & Kim, 2015). The
type of environment the founders find themselves also impacts the benefits of different types
of planning. In highly dynamic environments, founders gain most value from planning that
is selective and quick, whereas in less dynamic environments, founders appear to be better
off taking their time to spend longer on the planning task (Gruber, 2007).
Founders also engage in plans that are not formal in nature. For example, entrepreneurial
goal intentions (i.e., what the founder wants to achieve and is willing to invest to achieve)
and venture creation are magnified by founders’ use of action plans (Gielnik et al., 2014).
Action plans are mental simulations of the steps one needs to take to achieve a goal (Frese,
2009). These action plans also dampen the negative impact of positive fantasies (i.e., imag-
ined futures independent of previous experiences) on venture creation; it appears action plans
compensate for the motivational drain of positive fantasies (Gielnik et al., 2014).
Second, diversification strategies can affect new-venture survival and efficiency.
Nonprofit new ventures with a broad scope of products/services within and across industries
(Tanriverdi & Lee, 2008) had increased chance of survival, vis-à-vis those with a narrow
scope, but at the cost of organizational efficiency (Mendoza-Abarca & Gras, 2019). This
positive relationship between product diversification and new-venture survival is enhanced
for ventures with high revenue diversification, that is, a broad scope of revenue sources for
these nonprofit ventures, such as government grants, private donations, and goods sold
(Mendoza-Abarca & Gras, 2019).
Third, resource orchestration, through investment in human capital, leveraging R&D, and
capitalizing on founders’ start-up experience, can affect new-venture growth and profits.
Somehow counterintuitively, in a study of R&D active start-ups, Symeonidou and Nicolaou
(2018) found that deviating from rivals’ resource investments (either below but even above
the industry mean) reduces start-up performance, in terms of growth and profits. However,
high investment in human capital vis-à-vis rivals is less negatively related with performance
for those new ventures that pursue a leveraging strategy focused on the innovation of new
products and services and even less negative when founders have high start-up experience
(Symeonidou & Nicolaou, 2018).
Shepherd et al. / Creating New Ventures 15
Fourth, current founders can pursue new opportunities via one of two entry modes—
within their existing venture (e.g., new product development or acquisition) or by starting
up a new venture; both represent entrepreneurial action, but only the latter leads to the
start-up of a new independent venture, which is the focus of the current review. Wiklund
and Shepherd (2008) found that habitual founders—founders with prior start-up experi-
ence—were more likely to pursue new opportunities through the creation of a new inde-
pendent venture than novice founders—founders with no prior start-up experience—who
were more likely to pursue a potential opportunity within their existing venture. Portfolio
entrepreneurs—founders who pursued more opportunities concurrently—were more edu-
cated, had more links with government support agencies, more frequently used their busi-
ness networks, and had prior start-up experience (i.e., habitual founders; Wiklund &
Shepherd, 2008). In a similar way, Zander (2007) theorized about the boundaries of the
firm (i.e., why firms exist) and suggested that actors create a new firm, as opposed to an
arm’s length market contract, when other market participants are unable to understand or
accept their perceived “means end framework” (a coherent scenario of the unfolding of
future market events). Block, Thurik, Van der Zwan, and Walter (2013) noted that found-
ers can also decide to enter a new market by acquiring an existing firm as opposed to
starting up a new venture; start-up of an independent firm was more likely for those
founders who were more educated, were younger, had greater risk-taking prosperity, and
were more inventive (Block et al., 2013).
Finally, a new venture’s strategy can promote innovativeness, which can impact new-
venture performance, although the nature of the relationship is not as obvious as it might
seem. That is, on the one hand, we would expect innovation to provide the new-venture
benefits in terms of market power, cost efficiency, and capabilities such as absorptive capac-
ity, but on the other hand, innovativeness raises the liabilities of newness (Shepherd, Douglas,
& Shanley, 2000), which increases the likelihood of failure. Indeed, in a study of Finnish
start-ups, Hyytinen, Pajarinen, and Rouvinen (2015) found that innovativeness reduced the
survival chances of new ventures and that this negative relationship is amplified by the entre-
preneurs’ preference for risk.
Furthermore, new ventures can be innovative by tapping into external knowledge.
Indeed, open innovation is about “harnessing knowledge flows across firm boundaries”
(Greul, West, & Bock, 2018: 392). To benefit from open innovation, new ventures can use
inbound and outbound knowledge flows to build its capabilities (Chesbrough, 2003; Lee,
Park, Yoon, & Park, 2010), mindful that there are risks associated with such an organiza-
tional openness (Dahlander & Gann, 2010; Enkel, Gassmann, & Chesbrough, 2009). To
balance the pros and cons of open innovation, Greul et al. (2018) proposed that new ven-
tures have fewer inbound knowledge flows and fewer unmonetized outbound knowledge
flows when they have more technical capabilities and more proprietary intellectual prop-
erty. Interestingly, user entrepreneurs—entrepreneurs that have “personal experience
within product or service and derive benefit through use” (Shah & Tripsas, 2007: 124)—
are more likely than traditional entrepreneurs of allowing unmonetized outbound knowl-
edge flows (Greul et al., 2018). Moreover, accidental entrepreneurs—entrepreneurs who
“happen upon an idea through their own use” (Shah & Tripsas, 2007: 126)—are more
likely to allow unmonetized outbound knowledge flows than purposeful entrepreneurs
(Greul et al., 2018).
16 Journal of Management / Month XXXX
Performing the Start-Up of a New Venture
Organizational emergence. Organizational emergence refers to progress in the creation
of a new venture. In theoretical terms, this new venture represents a new unit of analysis that
produces outcomes beyond the actions of the individuals involved in the venture. Organiza-
tional emergence involves the linking of start-up activities and is dynamic in nature.
First, the engagement in and linking of start-up activities provide a basis for organiza-
tional emergence. An organization emerges along four properties: (a) intentionality, which
refers to founders purposefully investing effort to create the new venture; (2) resources,
which form the building blocks of an organization; (c) boundary, which delineates the for-
malized space of the organization; and (d) exchange, which involves movement of inputs and
outputs (e.g., resources) across the emerging organizational boundary (Brush et al., 2008;
Katz & Gartner, 1988). By engaging in activities that establish the properties detailed earlier,
founders are able to establish unique capabilities and stakeholder support to overcome the
venture’s liabilities of newness (Delmar & Shane, 2004; Suchman, 1995). Counterintuitively,
Brush et al. (2008) found that those founders who were able to quickly move through the
new-venture creation activities were less likely to continue organizing, that is, they were
more likely to terminate the pursuit of the new venture’s opportunity.
Second, organizational emergence is a dynamic process. Changes throughout organiza-
tional emergence are driven by an adaptive tension between a perceived opportunity or a
personal aspiration to start a business and the current state of the system (Lichtenstein et al.,
2007). It appears that the number of new-venture creation activities over time is positively
associated with new-venture creation (Lichtenstein et al., 2007). However, and in what seems
consistent with the surprising findings of Brush et al. (2008) reported earlier, the later these
activities occur, the more likely a new venture will be created. The start-up process can
become self-sustaining—enacting one activity offers the inputs for another activity. This
self-organization provides a momentum for new-venture creation (Lichtenstein, 2000).
New-venture legitimacy. New-venture legitimacy refers to audiences’ assessment of the
start-up and its actions as desirable, acceptable, and appropriate. We investigate new-venture
legitimacy in terms of seeking endorsement, the role of founders in promoting legitimacy,
how legitimacy can impact access to human and financial capital, and how new-venture
legitimacy occurs over time.
First, new ventures often seek some form of endorsement to increase their legitimacy.
There is usually considerable audience uncertainty about a new venture and its market offer-
ings. To reduce this uncertainty and to gain legitimacy, new ventures can signal information
about quality and credibility through their actions and projected founder experience, which
are magnified by third-party endorsements (Courtney, Dutta, & Li, 2017) and third-party
affiliations (Plummer, Allison, & Connelly, 2016). For example, positive signals, such as
managerial experience of the founder, having at least one product in the market, and operat-
ing from a commercial property, become more impactful for raising external funding when
they are backed by an affiliation with an incubator (Plummer et al., 2016). In a similar man-
ner, Fisher, Kuratko, Bloodgood, and Hornsby (2017: 68) proposed three primary mecha-
nisms via which new ventures can establish legitimacy: (a) identity mechanisms that “account
for how a venture is portrayed,” (b) associative mechanisms that “reflect which organizations
and individuals a new venture is tied with,” and (c) organizational mechanisms that “account
Shepherd et al. / Creating New Ventures 17
for the attributes of the organization leaders and exposed organizational achievements.”
Interestingly, third-party endorsement can come in the form of certification—“a process in
which a central institutional actor with authority or status formally acknowledges that a ven-
ture meets a particular standard”; certification can facilitate the transition from planned to
operational venture, especially for those new ventures in low legitimacy sectors (Sine, David,
& Mitsuhashi, 2007: 578).
Second, as implied earlier, the founders can influence the legitimacy of their new ven-
tures. For example, in a historical study of the magazine industry, Haveman, Habinek, and
Goodman (2012) concluded that skeptics to an emerging industry were persuaded not neces-
sarily by the products’ legitimacy but by the stature of the founders who created such prod-
ucts. As the industry evolved and gained general legitimacy, opportunities opened up for
socially peripheral founders to create ventures. Founders are generally portrayed as “legiti-
macy seekers” for their new ventures (O’Neil & Ucbasaran, 2016): They seek legitimacy by
(a) establishing, based on their values and beliefs, “what matters to me”; (b) focusing atten-
tion on their audiences by establishing “what matters to them”; and finally, (c) finding a bal-
ance between the two—“what matters to me and them.” Therefore, it appears important that
founders engage in reflection to adjust their legitimacy work to their audiences but “without
the entrepreneur feeling overly compromised” (O’Neil & Ucbasaran, 2016: 134).
In addition, a new venture is judged more favorably when it portrays a legitimately dis-
tinctive identity (Navis & Glynn, 2011), which involves “legitimizing claims” aligning the
venture with institutionalized conventions and also “distinctiveness claims” that distance it
from such institutionalized conventions in meaningful ways. The balance appears to depend
on the environment. For example, for new market categories, the founders’ emphasis is likely
on distinctiveness from established market categories (Navis & Glynn, 2011). To obtain
legitimacy, founders have to highlight their credentials—education, experience, family back-
ground, and status—which represent signals to external audiences that they are in line with
norms and stakeholders’ expectations (Nagy, Pollack, Rutherford, & Lohrke, 2012). The
founders can also engage in impression management to highlight certain aspects and disguise
others with the purpose of influencing audiences’ perceptions (Barsness, Diekmann, &
Seidel, 2005). However, some of the founders’ efforts to establish legitimacy may step over
an ethical line by, for example, telling legitimacy lies, that is, intentionally misrepresenting
the facts in a “manner intended to deceive” (Rutherford, Buller, & Stebbins, 2009: 954).
Third, legitimacy can impact access to human capital, which is of critical importance to
new ventures. Consistent with Navis and Glynn (2011), to attract potential employees, new
ventures need to balance distinctive employment claims (e.g., a supportive work environ-
ment) with founder and new-venture legitimacy claims (Moser, Tumasjan, & Welpe, 2017).
In a study of job seekers, Moser et al. (2017) found that, in comparison, distinctiveness
claims were more important for potential employees than legitimacy claims. More specifi-
cally, highly innovative employees were mostly attracted by the new venture’s distinct ideol-
ogy—“commitment to a valued cause”—and founders’ legitimacy, that is, founders educated
at a prestigious university and with professional experience at a renowned firm.
Finally, establishing new venture legitimacy involves a process over time. For example,
Tracey, Dalpiaz, and Phillips (2018) explored the legitimation process of “translated” ven-
tures, which try to loosely emulate a business model in one geography (e.g., business incuba-
tors in Silicon Valley) and launch the venture in another geography (e.g., Italy). This study
found three phases in the legitimation process, as follows: (1) improvising phase, when
18 Journal of Management / Month XXXX
founders try to explain the venture to local-level stakeholders (i.e., in Italy); (2) converging
phase, in which the founders attempt to explain the venture to categorical-level stakeholders
(i.e., incubators in Silicon Valley) in an effort to secure access to resources from them; and
an (3) optimizing phase, which involves using local characteristics to achieve distinctiveness
at an international category level and also using international category–level authentication
to achieve distinctiveness at the local level (Tracey et al., 2018: 1638).
There also appears to be a dynamic process between the reputation and status of a new
venture, as these two attributes are mutually dependent. Reputation is an economic concept
that refers to the “perceived or actual quality or merit that generate earned, performance-
based rewards” (Washington & Zajac, 2005: 283), and status is a sociological concept that
refers to social rank reflecting privilege or discrimination (Pollock, Lee, Jin, & Lashley,
2015). Pollock and colleagues found that (a) reputation’s positive relationship with status is
magnified for older firms, (b) big hits (such as a blockbuster IPO for venture capital firms)
increases status for young firms and enhances reputation for older firms, and (c) prior status
influences current status but less so as the firms age. For new ventures, the reputation of their
first partner had an immediate and ongoing impact of the firm’s status (Milanov & Shepherd,
2013). Part of the process of establishing legitimacy for the new venture is enrolling stake-
holders in the new venture’s endeavor. Stakeholder enrollment refers to the process of “creat-
ing deep psychological bonds between stakeholders and entrepreneurial endeavors” (Burns,
Barney, Angus, & Herrick, 2016: 97). When the new venture is shrouded in uncertainty,
efforts at stakeholder enrollment need to focus on the founder and the founding team, not the
nature of the potential opportunity (see Haveman et al., 2012).
Founder exit. Founder exit refers to an individual who was involved in the creation
of a venture leaving his or her role as owner and/or manager with that venture. There are
numerous exit strategies (Bruce & Picard, 2006; Ryan & Power, 2012) and modes of exit
(DeTienne, McKelvie, & Chandler, 2015; Wennberg, Wiklund, DeTienne, & Cardon, 2010)
available to founders. We investigate founder exit in terms of the different antecedents of
involuntary exit and the reasons for voluntary exit.
First, there is heterogeneity in the likelihood of founder exit. For example, founder exit is
more likely for ventures that are older and larger (Boeker & Karichalil, 2002; Dobrev &
Barnett, 2005) because the venture needs shift from tasks requiring entrepreneurial skills to
tasks requiring management skills (Boeker & Wiltbank, 2005; Wasserman, 2003). Given this
change in the nature of the required tasks, the venture benefits from replacing the founder
with a professional manager (Ewens & Marx, 2017; Wasserman, 2017) who can provide a
different skill set (Stevenson & Jarillo, 1990). The implication is that the founders’ exit is
forced upon them by the investors. Founders are more likely to withstand this pressure and
remain with their firms if they have experienced success at their previous firm, have prior
affiliations with the other members of the founding team, and have prior start-up experience;
environmental uncertainty magnifies these positive relationships (Boeker & Fleming, 2010).
Counterintuitively, Wasserman (2008) offers a founders’ dilemma in which the more
successful the founder is as CEO growing the firm, the more likely he or she is to be
replaced. It appears that success in the form of growth increases the likelihood that the new
firm will require external funding (and more of it) and that these investors, with greater
control of the company, will replace the founder with a professional manager. Generally, it
seems that founder-CEOs are more likely to be replaced if the firm is performing among
Shepherd et al. / Creating New Ventures 19
the worst in the industry or among the best in the industry; founder replacement is driven
by a mismatch between the quality of the business and the ability of the founder (J. Chen
& Thompson, 2015). Interestingly, while those firms that replaced the founder-CEO were
more likely to fail, those that survived grew at a faster rate (J. Chen & Thompson, 2015)
and had a more positive investor reaction at IPO (Nelson, 2003) than those firms who kept
the founder-CEO. Indeed, recent empirical research indicates that venture performance
typically increases when investors replace founders with professional managers (Ewens &
Marx, 2017; Wasserman, 2017).
Second, founders may choose to exit the venture voluntarily, for a number of reasons. For
example, a founder may exit the venture to avoid further losses (despite a reluctance to do so;
DeTienne, Shepherd, & De Castro, 2008; Gimeno, Folta, Cooper, & Woo, 1997; Huang
et al., 2019). In a recent study, Souitaris, Zerbinati, Peng, and Shepherd (2019) found that
founders voluntarily exited their ventures, in full or in part (exited management or owner-
ship), when they became frustrated by a loss in power over the direction of the venture.
Managers may also voluntarily exit their ventures as a positive harvest strategy (DeTienne &
External Environment and Starting Up a New Venture
A start-up’s external environment refers to the context beyond founders and their emer-
gent ventures. We investigate the external environment in terms of its imprinting effect, the
types of external environments that impact the start-up process, and the government as an
external environmental actor.
First, the external environment can imprint on new ventures. Imprinting explains how
individuals and organizations develop characteristics during a sensitive period (usually at the
time of creation) that persist despite the passing of time and environmental changes (Marquis
& Tilcsik, 2013). Mathias, Williams, and Smith (2015) found that founders can be (a)
imprinted by their family and friends, in which case they are more likely to pursue multiple
unrelated ventures; (b) imprinted by their hobby, in which case they focus on user communi-
ties to inform their decision making and are less motivated by pecuniary returns; and (c)
imprinted by prior work experience, in which case they focus on known knowledge fields
and emphasize growing their ventures. Moreover, the initial mode of ideation appears to have
a persistent impact. Specifically, founders who initially engage in organizational knowledge
brokering—“the ability to effectively apply knowledge from one technical domain to inno-
vate in another”—bring a positive impact on search patterns over time, which leads to supe-
rior performance vis-à-vis nonbrokers (Hsu & Lim, 2013: 1134). It also appears that
environmental imprinting is related to the masculinity or femininity of the industry in which
the new venture is created; Micelotta, Washington, and Docekalova (2018) found that new
ventures created based on identity claims associated with being female in a male-dominated
industry experienced the liability of differentiation—the disadvantage of offering a feminine
unique selling point to differentiate from competitors in a masculine industry.
Second, the nature of the external environment can directly impact the creation and per-
formance of new ventures. By investigating new ventures across different environments,
Katila and Shane (2005) found that new ventures are more innovative in markets that are
more competitive, attract more financial resources, are less manufacturing intensive, and are
smaller. In addition, new digital technologies can impact the creation of new ventures.
20 Journal of Management / Month XXXX
Specifically, von Briel, Davidsson, and Recker (2018) proposed six enabling mechanisms,
attributed to digital technologies, that affect the new-venture creation process (for example,
compression mechanisms accelerate the time required to perform an action, and conservation
mechanisms reduce the required resources to perform an action). Differences in the external
environment can also occur across countries. For example, De Clercq, Lim, and Oh (2013)
found that the positive relationship between the founders’ resources and the likelihood of
starting a new venture is more positive in countries where the financial system is more entre-
preneurially oriented, the educational system is more developed, the level of trust is higher,
and the culture is less hierarchal (i.e., little desire among country members to preserve exist-
ing power structures; Schwartz, 1999) and less communal (i.e., country members view them-
selves as autonomous; Schwartz, 1999).
Finally, government can influence the external environment of new ventures.
Specifically, government policies can facilitate or obstruct new-venture creation and per-
formance. One study in Israel found that government subsidies for R&D were associated
with the attraction of external investment, innovation, and new-firm survival (Conti, 2018).
Another form of subsidy is guided preparation for entrepreneurial activity, that is, the pro-
viding of “advice, education, and awareness” provided to new ventures (Rotger, Gørtz, &
Storey, 2012). In an investigation of a guided preparation program for nascent and new
founders in Denmark, Rotger et al. (2012) found that the program had a positive impact on
the size of the new ventures and their survival but not necessarily their growth. As indi-
cated already, governments can be a source of resources for new ventures. To access these
resources, founders can offer bribes, which constitutes an illegal activity. In a study of
nascent entrepreneurs in China, Baron, Tang, Tang, and Zhang (2018) found that entrepre-
neurs were more likely to offer bribes to government decision makers when the local eco-
nomic conditions were declining and even more so for entrepreneurs who had an underdog
identity, that is, difficult-to-change personal characteristics that are perceived by members
of society as low in social status.
Agenda for Future Research
There are ample opportunities for future research to contribute to the entrepreneurship
literature on start-ups and new ventures, prior to scaling. Although we could offer future
research within each of the categories (i.e., boxes and circles of Figure 1), we prefer to focus
on the arrows for a number of reasons. First, the papers reviewed within a category each offer
a future research section that are useful in describing future extensions of the current models.
Second, the arrows represent the connections between constructs and therefore offer a
broader basis for speculating on research opportunities, the opportunity to combine and
recombine these conceptual chunks to develop new theorizing (i.e., theory bricolage;
Boxenbaum & Rouleau, 2011), and a focus on the mechanisms connecting them, which is
critical to strong theorizing (Anderson, Drakopoulou Dodd, & Jack, 2012). Third, a focus on
the arrows forces us to think about causality, reverse causality, mutual dependence, and the
possibilities of virtuous or vicious spirals. Finally, a focus on the arrows also provides a basis
for calling for more process-based research in the start-up venturing process.
Founder and founding team. Although there has been considerable scholarly attention on
the solo founder and, to a lesser extent, the founding team, there is a need for research that
connects the two. First, in a group of founders, why and how is one chosen to be the lead
Shepherd et al. / Creating New Ventures 21
founder? Of course, even this question has implicit assumptions that need to be explored.
For example, perhaps a lead founder is not chosen but emerges from the team formation and
activities involved in start-up. It would be interesting to have a deeper understanding of the
process of choosing a lead founder and/or how he or she emerges over time. Furthermore, in
what way does the lead founder lead? And how do non-lead founders follow? At this early
stage of team formation, in a highly uncertain environment, current theories of leadership
and leader-member exchange are unlikely to directly apply, requiring theory extension or
Founder, team, and social network. Although we are beginning to understand how a
team’s knowledge is developed, we are less clear on the aggregation process by which
each individual member’s social network and capital are combined to influence enrolling
stakeholders and engaging a community of inquiry. Again, we have a rich understanding
of an organization’s network and the benefits (and constraints) of that network. It seems
that we are only starting to gain an understanding of how networks are formed in the first
place and how that formation facilitates and is facilitated by the processes by which the
founding team is formed (including the leadership of the lead founder), the identification
of a potential opportunity, the formation of a community of inquiry, the enrollment of
stakeholders, and progress in organizational emergence. Indeed, the field has made some
important steps along this path largely by exploring the creation of new venture-capital
firms (e.g., Milanov & Shepherd, 2013). Although new venture-capital firms are new
ventures, extending this stream of research to other contexts will be important to deter-
mine whether important aspects are different and consequential, such as the nature of
the potential opportunity, the formation and maintenance of a community of inquiry, the
dynamic within the founding team, and aspects of the environment, such as the nature
of uncertainty (for example, it is likely that a non-venture-capital new firm may find it
more difficult to establish a portfolio as a means of managing uncertainty than a new
Founder cognitions and community of inquiry. We are also taking some important
steps in building on our understanding of potential opportunity, as a result of entrepre-
neurial cognition research, to acknowledge the importance of a community of inquiry.
However, we believe that current research has only scratched the surface of this important
research topic. For example, it is important to understand how the cognitions and actions
of different subcommunities within the community of inquiry directly influence a found-
ing team’s collective cognitions and actions and do so indirectly through their interaction
with the potential opportunity. Thinking of the potential opportunity as a boundary object,
such as a prototype (perhaps a minimum viable product), how do the interactions proceed
(a) between the community of inquiry, prototype, and founder and vice versa; (b) between
one subcommunity, the prototype, and another subcommunity of inquiry; and (c) between
the lead founder, the prototype, and the rest of the founding team? Perhaps because the
notion of opportunity has been rather amorphous, there has been little research on these
relationships. However, as we focus more on potential opportunities, and their different
manifestations, we are at the dawn of a new era of entrepreneurship research that explores
the dynamism of communities of inquiry, potential opportunities as boundary objects
(including prototypes), and founders.
22 Journal of Management / Month XXXX
Community of inquiry and emergent organizing. While we are gaining a deeper under-
standing of how founding teams engage in the activities of emergent organizations, there
are other relationships that have received less scholarly attention despite their apparent
importance. We argue that it is important to understand how a community (or communi-
ties) of inquiry influence (and are influenced by) the potential opportunity and by other
aspects of emergent organizing. For example, to what extent (and how) are communities of
inquiry responsible for aspects of emergent organizations, such as the sequence of nascent
activities and the quality and speed of completion of those activities? And how does the
nature of the potential opportunity (e.g., prototype or minimum viable product as manifes-
tation of potential opportunity) indirectly influence organizing activities through the input
of the community of inquiry? Moreover, it is likely that there are subcommunities with an
indirect role in the emergence of the new venture and perhaps also in the emergence of
the overall community of inquiry, based on how they engage with and/or disengage from
one another. Why and how are some subcommunities involved in the organizing activities
while others are not, and when does subcommunity input obstruct rather than facilitate
progress in emergent organizing? There is also much to learn about how founders “man-
age” members of the community of inquiry, how members of the community of inquiry
“manage” founders, and how subcommunities “manage” other subcommunities through-
out the emerging organizing process.
Emergent organizing and new venture strategy. Although we have a substantial stream
of research that is self-labeled as new-venture strategy, much of this literature applies to
new ventures beyond the start-up phase (and thus beyond the focus of the current study), for
example, focusing on return on investment or other growth outcomes more appropriate for
scaling ventures than for start-ups. Not only do we need research on the strategies of early-
stage new ventures and more proximal outcome variables, but there is an opportunity to bet-
ter explore the relationships between emergent organizing and new-venture strategy. Future
research could explore how different emergent organizing processes or paths lead to the
formulation and enactment of different strategies. Indeed, emergent organizing provides an
opportunity to theorize and empirically explore how the building blocks of a new venture’s
strategy are initiated, developed, and deployed. For example, by investigating the role of the
founding team on emergent organizing activities, we are likely to gain a deeper understand-
ing of the creation of capabilities, routines, norms, organizational culture, and so on as the
basis of (or perhaps even the dynamic outcome of) a new venture’s strategy. Understanding
the micro foundations of new-venture strategy will make important contributions to both the
entrepreneurship and strategic management literatures.
New venture strategy and outcomes. There are research opportunities to extend and
develop new theory on the relationship between the strategies of start-ups and proximal out-
comes. Such research can build on the sociological research on legitimacy to explore how
new ventures’ strategies can increase legitimacy (or otherwise limit the downside effects of
liabilities of newness), make the most of low legitimacy (in what ways can low legitimacy
represent a potential advantage, and how can that advantage be exploited?), and whether
there are illegitimate new-venture strategies that are effective at building legitimacy (i.e.,
extending the work on legitimacy lies). Moreover, the nature and level of organizational
emergence are important in understanding the relationship between new-venture strategies
Shepherd et al. / Creating New Ventures 23
and legitimacy. Indeed, future research can explore the direct and indirect (via organizational
emergence) impact of new-venture strategies on legitimacy. There might be instances in
which new-venture strategies that promote rapid organizational emergence have a negative
relationship with legitimacy (e.g., growing too fast is consistent with the notion of a bubble
or perhaps unethical behavior). Moreover, while potential stakeholders provide or assign
legitimacy, it is important to understand how various forms and levels of legitimacy influ-
ence changes in the composition, diversity, and usefulness of the community of inquiry and
how these effects impact subsequent processes, including refinement of the potential oppor-
tunity, emergent organizing, and changes in the new venture’s strategy (e.g., a pivot).
Organizational emergence and founder exit. There has been limited but highly important
research on founder exit. Future research can extend these studies and/or theorize anew on
how the different forms, progress, and paths of organizational emergence impact the time,
the type, and the reactions to founder exit. Perhaps the effectiveness of new-venture strat-
egy for rapid organizational emergence leads to the involuntary exit of the founder (i.e., in
a similar logic to the founders’ dilemma; Wasserman, 2008). Perhaps the founder’s exit is
driven by the community of inquiry. It could be that as the new-venture process proceeds
and the nature of the community of inquiry and/or stakeholders change and/or the nature of
the potential opportunity changes, so too do the requirements, expectations, and satisfaction
with the current lead founder. In contrast, perhaps some founder exits involve dynamics
internal to the founding team. Given that we do not have a good understanding of how the
lead founder becomes the leader, enacts his or her leadership, and have others follow, it is not
surprising that we do not have an adequate understanding of the internal processes by which
a lead founder is replaced, and the consequences for the motivation and togetherness of the
founding team, going forward.
External environment and entrepreneurial agency. Although there is a recent emphasis
on context (Welter, 2011) and an understanding of how the environment can impact the start-
up of a new venture (Fritsch & Storey, 2017), there is more to learn about how the players in
the process of starting up a new venture can both adapt to changes to the environment and, by
their actions, change the environment. How does the emergence of a new venture, pursuing
a particular opportunity with a particular community of inquiry and with a particular found-
ing team, enact substantial changes to the environment? Therefore, we hope future start-
up research does not take the environment as some static, all-powerful force but explores
entrepreneurial agency—how new ventures can substantially change the environment for
themselves and others. Such an approach is particularly important when thinking about how
new ventures can improve (or destroy) the natural environment, improve (or destroy) the
economic and social welfare of others, and improve (or destroy) cultures and communities.
Of course, as we recognize the role of the start-up process on the external environment,
there are opportunities to explore the causes, nature, and consequences of a mutually depen-
dent relationship between a start-up and the external environment (for the start-up, for other
start-ups, for founders and founding team, for stakeholders and communities of inquiry, for
organizational emergence, and for the new venture’s [and other new ventures’] legitimacy).
Although challenging empirically, we believe it is critically important that future research
investigate the reciprocal nature of the relationship between starting up a new venture and
the external environment.
24 Journal of Management / Month XXXX
From start-up to scale-up. Future research can continue from where we stopped—linking
the process of starting up a new venture to the process of scaling a new venture. We believe
too often the start-up and scaling stages are merged (or the differences ignored), which has
obstructed knowledge creation. Therefore, there is considerable opportunity to explore how
the start-up phase impacts the scale-up phase. Although some activities may remain consis-
tent across phases, there are likely a number of changes that indicate the need to transition, a
number of changes to implement the transition, and a number of changes in both the inputs
and outcomes of the transition from start-up to scale-up. We believe research at the interface
of the start-up and scale-up phases can make important contributions to the entrepreneurship
literature and provide an important bridge to the strategic management literature.
New-venture creation, namely, the phenomenon of starting up a new organization, is at the
core of the field of entrepreneurship and is also informative to the broader field of manage-
ment. The literature on new-venture creation has rapidly evolved in the past two decades.
Hence, in this article, we reviewed the new-venture creation literature subsequently to 2003,
when the previous major review on the topic was published (Shook et al., 2003). After a
systematic review of 143 papers published in our top management and entrepreneurship
journals, we inductively generated a framework. Our framework aims to provide a compre-
hensive view and a cohesive story of the literature until today. We then offer a road map for
future research on creating new ventures, focusing less on extending our knowledge within
each subtopic separately and more on understanding the links between the subtopics.
Dean A. Shepherd https://orcid.org/0000-0003-4269-1826
1. We note that the last comprehensive review on the topic was by Shook, Priem, and McGee (2003).
Even then, their review was narrowly focused on enterprising individuals and future research on individual
judgment. There have been other, more recent reviews focusing on important but narrow topics within the
broader domain, for example, the lean start-up methodology (Bortolini, Nogueira, Cortimiglia, Danilevicz, &
Ghezzi, 2018; Shepherd & Gruber, 2020). Moreover, while new-venture creation is central to entrepreneurship
research, we note that the former is a subset of the latter.
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