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Rediscovering Profitability in Entrepreneurship (This thesis suggests…

- - - - Public policies have been set specifically to encourage entrepreneurial activities in hightechnology related industries in the hope of future prosperity included. The role of the IT industry is becoming increasingly important to the Finnish economy
    - - Despite the disproportionate focus on high-growth firms both in academia and public policy, little is known about their actual economic performance and the phenomena overall
    - - The different types of growth are most commonly only referred to as growth, regardless of the fact that they propose conflicting behavior in the firm.
      - The second issue is that of the firm‘s value. In order to increase a firm‘s valuation, a pursuit for unprofitable high-growth may be a strategic decision
        
        Such a strategy often creates a growth imperative for the firm, where continuously transcending shareholder‘s growth expectations is the only way of satisfying shareholders
- - - - entrepreneurial profit is the difference between the two sets of prices: the price sold and the lower price bought
      - entrepreneurial profit as the surplus over costs
      - EBIT is also mostly seen as the best profitability measure by venture capitalists, accountants, public investors, policy makers, and entrepreneurs
    - - The first element covers the reward the entrepreneur receives for his or her entrepreneurial effort. In order to break-even, the profit level must exceed a level that covers for the opportunity cost, lack of liquidity of investment (financial and human resources), risk, and uncertainty.
      - The second element of performance takes into account the entrepreneur in a social context. This takes into account the social wealth produced by the entrepreneur, such as creating new markets and industries, new technology, employment, taxes, and productivity enhancements
- - - - Economies of scale
        
        A necessity to grow, despite the consequences, has even influenced entire economies. an economy of scale – achieved by growth – is a means of increasing the competitive advantage of a nation. In this belief, economic growth
        
        The extraordinary growth rate scaused impression, as well as fear and envy, among the leaders and policy makers in Western economies.
      - Experience curve
        
        The basic assumption of the experience cost curve is that for each increase in output the unit costs will decrease. Therefore, the business with the highest output will be able to produce with the lowest unit cost, leading to cost leadership. The firm with cost leadership will thereby enjoy the highest profit margins.
        
        Despite the model being widely adopted within strategy research, Day and Montgomery (1983) criticize it. They argue that the model possesses a large potential
        for misinterpretation, due
      - First-mover-advantage
        
        The concept of first-mover-advantage (hereafter FMA) also builds on the idea of early growth leading to an increase in profits . The underlying assumption of FMA leading to profits is that being first and achieving early market acceptance will promote proprietary learning effects, patents, preemption of input factors, and the development of switching costs.
      - Network externalities
        
        when a large number of consumers use a product, it becomes relatively cheaper for them or for new customers to consume that product instead of one of the competitors. For the firm the cost of acquiring new customers decreases, therefore improving the profit margin. Similarly, existing customers will be retained for a longer duration, due to perceived higher switching cost.
      - Growth and profitability among Finnish high-technology firms
        
        used EBIT-to-sales ratio (EBIT). EBIT was preferred over ROA because lifescience firms rarely require substantial assets. In addition, EBIT is mostly preferred by practitioners themselves
    - - The biological analogies, suggesting that firms grow like organisms, work as the basic foundation of the stages model. Despite strong critique against the use of biological analogies, the stream of research has progressed over decades without anyone critically assessing its basic assumptions.
      - a holistically influenced methodology may work as a tool for breaking the current boundaries and viewing the phenomenon in novel ways, both theoretically and empirically
      - researchers understand the field as more unified than it really is. When measures with low concurrent validity are regarded as comparable and used interchangeably, and often even used without proper justification , there is a danger of drawing false conclusions
    - - This view considers growth simply as a dependent variable, an outcome, and then uses a number of independent variables to explain this dependent variable.
      - the five most commonly used predictors of growth are
        
        (I) the personality characteristics of the entrepreneur,
        
        (II) the resources available to the firm
        
        (III) the strategy of the firm
        
        (IV) the geographic location of the firm
        
        (V) its industrial context.
      - The smallest, and at the same time the most heterogeneous, of the sampling units is the individual. Entrepreneurship research is becoming increasingly more depersonalized, which is something that has also happened in economics research
      - Growth is a multidimensional concept, which can be conceptualized in a number of ways. Understanding this requires a closer look at some of the studies focusing on growth. Growth is most commonly associated with performance, which is further seen as being equal to success
      - "Although knowledge accumulation is dependent upon relationships among constructs being robust across different measurement and sampling decisions, scholars have not sufficiently established such robustness for the construct of firm growth".
      - Through further empirical research on new venture growth, the field will improve its understanding of this complex process toward helping entrepreneurs achieve the ultimate measure of performance, longevity and wealth creation – profitability
    - - The emergence of the prevailing growth mantra is difficult to understand. The works that has contributed significantly to the theoretical foundations of the field are all concerned with one thing only, profits.
      - Profits are of crucial importance for both the firm, as well as for society . Profits act as the pre-requisite for further profitable growth
        
        .
      - Regardless of the central role of profits, the focus of research has shifted into a very different phenomenon, namely growth and high-growth
      - .
        
        Entrepreneurship literature is to a large degree focused on studying performance
      - When it comes to determining what performance is, very little consensus seem to exist. However, the word performance, which is mostly used synonymously to success, mostly refers to growth.
      - With regard to determining what growth is, very little consensus seem to exist
      - Very few growth indicators are comparable with each other and the entrepreneurship research community seems to have failed to acknowledge this. This has lead to the research results often being dependent from the measures used
        .
      - The growth entrepreneurship research is criticized for being fragmented, its research results are inconclusive and very little is known about the phenomenon overall
      - Calls have been made for research adopting more holistic views for a better understanding of complex phenomena )