Schumpeter revisited - faster better cheaper as grounds for entre

University of Louisville ThinkIR: The University of Louisville's Institutional Repository Electronic Theses and Dissertations 5-2019 Schumpeter revisited : faster better cheaper as grounds for entrepreneurial success and a path to an IPO Charles Raymond Olsavsky University of Louisville Follow this and additional works at: https://ir.library.louisville.edu/etd Part of the Entrepreneurial and Small Business Operations Commons Recommended Citation Olsavsky, Charles Raymond, "Schumpeter revisited : faster better cheaper as grounds for entrepreneurial success and a path to an IPO." (2019) Electronic Theses and Dissertations Paper 3183 https://doi.org/10.18297/etd/3183 This Doctoral Dissertation is brought to you for free and open access by ThinkIR: The University of Louisville's Institutional Repository It has been accepted for inclusion in Electronic Theses and Dissertations by an authorized administrator of ThinkIR: The University of Louisville's Institutional Repository This title appears here courtesy of the author, who has retained all other copyrights For more information, please contact thinkir@louisville.edu SCHUMPETER REVISITED: FASTER BETTER CHEAPER AS GROUNDS FOR ENTREPRENEURIAL SUCCESS AND A PATH TO AN IPO By Charles Raymond Olsavsky B.E., Youngstown State University, 1979 J.D., University of Akron, 1987 M.B.A., University of Michigan (Ann Arbor), 2012 A Dissertation Submitted to the Faculty of the College of Business of the University of Louisville in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy in Entrepreneurship Entrepreneurship Department College of Business University of Louisville Louisville, Kentucky May 2019 Copyright 2019 by Charles Raymond Olsavsky All rights reserved SCHUMPETER REVISITED: FASTER BETTER CHEAPER AS GROUNDS FOR ENTREPRENEURIAL SUCCESS AND A PATH TO AN IPO By Charles Raymond Olsavsky B.E., Youngstown State University, 1979 J.D., University of Akron, 1987 M.B.A., University of Michigan (Ann Arbor), 2012 A Dissertation Approved on April 15th, 2019 by the following Dissertation Committee: Dr James O Fiet Dr Robert P Garrett Dr Andrew Manikas Dr Jeff Guan ii DEDICATION This dissertation is dedicated to my family including my wife Linda Olsavsky and our kids Bethann Olsavsky Chas Olsavsky Amber Parker and Stephanie Blubaugh for their support through a difficult time iii ACKNOWLEDGEMENTS I would like to thank my wife Linda Olsavsky for all of her patience, hard work and support Due to my handicaps and her IT skills, she provided help and support that was much greater than the usual support of a spouse I would like to thank my dissertation chair, Dr Fiet for his hard work, patience and valuable guidance through the dissertation process I would also like to thank my other committee members for assistance and comments: Dr Garrett, especially for his comments on producing publishable articles; Dr Manikas, especially for his guidance on Dr Hammer research; and Dr Juan, especially for his guidance on research methodology I would also like to thank Dr Kenney and Dr Martin (both at UC Davis) for giving me access to their database Firm Database of Emerging Growth Initial Public Offerings (IPOs) from 1990 through 2015 I could not have completed the dissertation without the database iv ABSTRACT SCHUMPETER REVISITED: FASTER BETTER CHEAPER AS GROUNDS FOR ENTREPRENEURIAL SUCCESS AND A PATH TO AN IPO By Charles Raymond Olsavsky April 15, 2019 Current entrepreneurship research focuses on two types of entrepreneurial firms: (1) the firms that develop innovative novel products or services arising from technological innovation; and (2) the firms that develop innovative novel products or services arising from recognition of an opportunity in existing conditions, no type of change required A third type of business founder has been largely ignored in the modern entrepreneurship research - - the founder who enters a competitive market with no novel product or service that he or she invented I refer to this founder in a competitive market as a performance entrepreneur This dissertation presents theory to argue that there are high growth opportunities in certain competitive markets and analyzes the prevalence of performance entrepreneurs among US IPO firms Of particular interest is the performance entrepreneur who enters a new competitive market recently enabled by new technology I present theoretical arguments (under a resource based view(RBV)) that the majority of high growth firms are performance entrepreneurship firms, not firms with innovative new products Joseph Schumpeter opined in 1942 that technological advances were becoming too complex for entrepreneurial firms Michael Hammer opined through v the 1990s and early 2000’s that many business opportunities would arise through efficiency as a result of technological changes I utilize these opinions and theories to advance my theory In a stratified research effort, I reviewed SEC filings of over 500 firms that went through IPOs in the 1995-2015 period IPO firms are firms very successful firms that have achieved high growth and are generally considered to be at the pinnacle of entrepreneurship My interest is the business ventures pursued by successful firms The research showed that over 80% of these firms were performance entrepreneurship firms, not firms that had developed high technology products or services This research is important because it shines a light on an important group of entrepreneurs who have been largely ignored in the modern entrepreneurship, even though they figured prominently in the traditional entrepreneurship vi TABLE OF CONTENTS PAGE ACKNOWLEDGMENTS , iv ABSTRACT , v LIST OF TABLES , viii INTRODUCTION .1 LITERATURE REVIEW AND HYPOTHESIS EVELOPMENT 11 RESEARCH METHODOLOGY .26 RESEARCH RESULTS 39 DISCUSSION AND CONCLUSIONS 47 REFERENCES 52 CURRICULUM VITAE 71 vii FIGURE 1- Venn Diagram of Firms Not Tech-enabled Tech-enabled Tech-maker A B Kirznerian C D Performance Entrepreneurship E F 57 Figure Prevalence of Tech-maker Firms Primary Schumpeterian 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 1990 1995 2000 2005 58 2010 2015 2020 Figure Prevalence of Performance Entrepreneurship Firms Performance Entrepreneurship 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 1990 1995 2000 2005 59 2010 2015 2020 Figure Prevalence of firms that are both Tech-enabled and Performance Entrepreneurship 100.0% Performance Entrepreneurship & Derivative Schumpeterian 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 1990 1995 2000 2005 60 2010 2015 2020 Table US Patents Table US Patents Calendar Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 Utility Patent Applications 589,410 578,802 571,612 542,815 503,582 490,226 456,106 456,321 456,154 425,967 390,733 356,943 342,441 334,445 326,508 295,926 270,187 243,062 215,257 195,187 212,377 189,857 174,743 173,075 164,306 164,558 152,750 139,825 Design Plant Patent Patent Applications Applications 39,097 35,378 36,034 32,799 30,467 29,059 25,806 27,782 27,752 25,515 25,553 23,975 22,602 20,904 18,280 18,292 17,761 17,107 16,546 15,161 15,409 15,774 13,635 13,078 13,061 11,288 12,615 11,289 1,140 1,063 1,406 1,149 1,139 992 959 1,209 1,049 1,151 1,222 1,221 1,000 1,144 944 797 863 720 621 665 452 459 361 354 463 418 383 377 61 Utility Patents 298,407 300,678 277,835 253,155 224,505 219,614 167,349 157,772 157,282 173,772 143,806 164,290 169,023 167,331 166,035 157,494 153,485 147,517 111,984 109,645 101,419 101,676 98,342 97,444 96,511 90,365 95,537 77,924 Design Patents Plant Patents Patents to Foreign Residents 25,986 23,657 23,468 21,951 21,356 22,799 23,116 25,565 24,062 20,965 12,951 15,695 16,574 15,451 16,871 17,413 14,732 14,766 11,414 11,410 11,712 11,095 10,630 9,269 9,569 8,024 6,092 5,679 1,074 1,072 847 860 823 981 1,009 1,240 1,047 1,149 716 1,016 994 1,133 584 548 420 561 394 362 387 499 442 321 353 318 587 425 169,763 166,999 154,891 142,180 125,998 122,694 96,677 92,929 89,007 93,942 75,046 87,051 88,258 87,101 85,173 78,871 74,877 72,398 54,107 52,267 49,327 49,224 48,531 48,572 48,944 46,094 47,804 39,625 Table Background and Breadth of Database History of Database This database is the product of many years of effort Originally this project was directed to parsing the IPO registration documents of just the semiconductor, biotechnology, and telecom equipment IPOs from 1996 through 2000 Based on the research value of these efforts (Kenney and Patton 2005, Patton and Kenney 2005), this work was expanded to include all de novo IPOs from June 1996 through 2000 A second effort was mounted to build a database from 2001 through 2006 with support from the National Science Foundation – Geography and Regional Sciences (NSF 0647838) A third stage to collect this data for the years 1990 through 1996 was completed with funding from the Science of Science Policy program of the National Science Foundation (NSF 0915257) Based on our work with Jay Ritter for the Kauffman Foundation on employment and revenue growth of firms following their IPO (Kenney, Patton, and Ritter 2012), we have also extended our database to include the time period from June 1996 through the year 2010 As part of our ongoing research on IPOs and new firm formation we have recently expanded this database to include the years 2011-2015 The database currently has data on 4,420 IPOs Completeness This guide deals with the data about the firm going public and the offering itself, and is a complete database of emerging growth, de novo firms going public on American exchanges from 1990 through 20152 The format of this database is Excel Broad Definition Our definition of emerging growth companies differs from the definition used in the 2012 Jumpstart Our Business Startups (JOBS) Act This bill defines emerging growth companies to be any company with annual revenue of less than $1 billion Our definition of emerging growth companies is based on their status as de novo and is not based on their revenue at the time of their IPO Therefore, our definition includes the IPOs of Google and Facebook, which are excluded under the definition in the JOBS Act 62 Table Excluded Firms From Database Restricted Firms This database is comprised of all emerging growth initial public offerings (IPOs) on American stock exchanges and filed with the Securities and Exchange Commission (SEC) from January 1990 through December 2015 In assembling the set of firms to be included we relied on Thomson Financial Venture Expert, SDC data, IPOScoop.com, and other sources to generate a list of all IPOs over this time period From this list the following types of firms and filings were excluded: mutual funds, real estate investment trusts (REITs), asset acquisition or blank check companies, foreign F-1 filers, firms that had gone public at an earlier time, and all spin-offs and other firms that were not true de novo, emerging growth firms Data Reviewed to Determine if Restricted Every firm going public must file a prospectus with the U.S Securities and Exchange Commission prior to its initial public stock offering The IPO is a defining event in the history of any firm, and it performs two functions First, it provides the firm with capital so that it can continue its expansion Second, after the IPO, the stakes of both management and investors, (subject to certain lock-up delays) becomes liquid In return, the firm must conform to the reporting and transparency requirements imposed by the SEC under the Securities Act of 1933 One of the primary objectives of the Securities Act of 1933 is to require companies making a public offering of their securities to publicly disclose relevant business and financial information about their company so that potential investors can make an informed investment decision regarding the offering To achieve this end the 1933 Act requires companies going public to file disclosure documents with the Securities and Exchange Commission, the most important of which are the general form S-1 registration statement and the 424B prospectus This database has been constructed directly from these registration statements and prospectuses These documents were found on the SEC's Electronic Data, Gathering and Retrieval (EDGAR) website Up until the advent of the SEC's EDGAR system, IPO registration statements and other SEC documents were filed in paper form in officially designated locations and libraries Beginning in the 1980s the SEC began to provide Internet access to these documents through its EDGAR program, but it wasn't until June 1996 that public firms were required to file all of their documents in this format Therefore, a complete EDGAR record of all IPO documents for firms going public only begins in June 1996 For IPOs prior to June 1996 we have relied on IPO registration statements and prospectuses that were originally found in paper form These documents were found at the Stanford Graduate School of Business Library in either pdf or TIFF format It is from these documents that the data for IPOs from January 1990 through May 1996 were obtained 63 Table Variable Sources Sources of Variables This database contains variables that pertain to the firm going public and the offering itself Each firm is assigned a Central Index Key by the SEC which we are using as the firm's unique identifier All of the variables in this database are extracted from each firm's prospectus (form 424B) or the firm's registration statement (form S-1) Main Variables Sources from SEC filings Company ID: The firm's Central Index Key (CIK) assigned by the SEC This is used as the unique identifier of each firm in this database If a firm was no longer publicly traded by the time EDGAR was initiated, it would not have a CIK In these cases, we assigned a unique ID to the firm Company Name: Firm name at the time of the IPO IPO Year: The year of the IPO State of Incorporation: State of incorporation at the time of the IPO Company Street 1, Company Street 2, Company City, Company State, Company Zip: The company’s business address Stock Symbol: The stock market symbol, or ticker, of the firm's stock Other Variables SEC SIC: This is the digit Standard Industrial Code (SIC) assigned to the firm by the SEC's Division of Corporate Finance Primary SIC: This is the digit SIC found in the firm’s S-1 registration statement This is the SIC the firm going public assigns to itself, and on occasion it does not agree with the SEC SIC Year Founded: This is the year the firm was founded 64 Table Random Selection Process Random Selection Process for Selecting Firms in a Year Step Start with a list of the firms from database for that year in alphabetical order Step Count the number of firms Step If the number of firms is 25 or less, put all the firms in the sample Step Determine if the number of firms can be divided by a number that results in a number between 25 and 29 (plus a possible remainder) For example, if there would be 77 in the sample, you could divide by and get an answer of 25, remainder Step If so, randomly select every nth firm in the list starting from the bottom In the example of 77, you would start at the bottom and pick every 3rd firm Step If not, if one dividing by one number produces too few and one number produces too many, Divide by the number that produces too and randomly select the remaining firms from the bottom of list 65 Table General Results Percentage of firms in the different classes Year Tech-maker Performance Entrepreneurship Kirznerian Tech-enabled Performance Entrepreneurship & Tech-enabled 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 14.8% 17.9% 11.1% 16.0% 0.0% 7.7% 6.7% 8.0% 7.7% 23.1% 18.5% 7.7% 32.0% 40.0% 7.1% 12.0% 8.6% 17.9% 28.6% 20.0% 29.3% 85.2% 82.1% 88.9% 84.0% 92.6% 92.3% 93.3% 92.0% 92.3% 76.9% 81.5% 88.5% 68.0% 60.0% 92.9% 88.0% 85.7% 82.1% 71.4% 80.0% 65.5% 0.0% 0.0% 0.0% 0.0% 7.4% 7.7% 3.3% 4.0% 0.0% 0.0% 3.7% 3.8% 0.0% 0.0% 0.0% 0.0% 5.7% 0.0% 0.0% 0.0% 5.2% 40.7% 53.6% 37.0% 44.0% 92.6% 80.8% 40.0% 36.0% 30.8% 57.7% 11.1% 23.1% 64.0% 40.0% 71.4% 60.0% 51.4% 64.3% 0.0% 56.0% 46.6% 37.0% 53.6% 25.9% 44.0% 92.6% 76.9% 36.7% 32.0% 30.8% 42.3% 7.4% 23.1% 52.0% 20.0% 57.1% 56.0% 45.7% 53.6% 28.6% 48.0% 31.0% Avg 15.9% 83.0% 1.9% 49.5% 42.6% 66 Table Prevalence of Tech-Maker Confidence Level is total sample proportion is conf level proportion not critical value margin of error lower limit upper limit Tech-maker 91 568 16.0% 0.99 84.0% 2.576 0.039643726 12.1% 20.0% 67 Table Comparison of Tech-maker and Performance Entrepreneurship Performance Entrepreneurship 91 469 568 568 16.0% 82.6% Tech-maker alpha p bar q bar z p value 0.01 0.492957746 0.507042254 22.43239845 0.000000 68 Table Comparison of Kirznerian and Performance Entrepreneurship Performance Entrepreneurship Kirznerian 469 13 568 568 82.6% 2.3% alpha p bar q bar z p value 0.01 0.424295775 0.575704225 27.37421129 0.000000 69 Table 10 Comparison of Tech-maker and Tech-enabled/Performance Entrepreneurship Performance Entrepreneurship & Tech-enabled Tech-maker 240 91 568 568 42.3% 16.0% alpha p bar q bar z p value 0.01 0.291373239 0.708626761 9.728894569 0.000000 70 CURRICULUM VITA NAME: Charles Raymond Olsavsky ADDRESS: 408 Davies Ave Louisville, KY 40208 DOB: Youngstown, OH – December 20, 1956 EDUCATION & TRAINING: B.E (cum laude), Management Engineering Youngstown State University 1975-79 J.D (cum laude), Law University of Akron 1983-87 M.B.A (with High Distinction), Business Management University of Michigan (Ann Arbor) 2010-12 Professional Certificate, Financial Engineering Columbia University (NY) 2013-14 Ph.D., Entrepreneurship University of Louisville 2015-19 AWARDS: Tau Beta Pi Law Review AV Martindale-Hubbell rating PROFESSIONAL SOCIETIES: Academy of Management Florida Bar INVITED PRESENTATIONS: The Entrepreneurship and Free Enterprise Research Conference, April 14, 2018, Lexington KY, University of Kentucky 71 ... are opportunities for the performance entrepreneur The quest for faster better cheaper creates entrepreneurial opportunity at two levels First, there is opportunity for an entrepreneurial firm... that it was using were new technology of others, so it was classified as tech-enabled for its environmental classification It would be tempting to not classify the firm as performance entrepreneurship... REVISITED: FASTER BETTER CHEAPER AS GROUNDS FOR ENTREPRENEURIAL SUCCESS AND A PATH TO AN IPO By Charles Raymond Olsavsky April 15, 2019 Current entrepreneurship research focuses on two types of entrepreneurial