LEADERSHIP EDUCATION AS SUCCESS FACTOR IN NEW VENTURE CREATION SUPPORT

Tobias Meyhöfer, Markus Schacht, Steffen Jahn, Cornelia Zanger and Sandra Kaminski1

SUMMARY

One important contribution to cultural, social and economic development is the support of entrepreneurs when creating new ventures. There are several institutions who accompany potential company founders. These institutions have developed different models and processes to support the entrepreneur and the founding teams. Most processes are focused on imparting knowledge. Too many founders fail when starting up a business or do not achieve sustainable growth. To be successful with creating a company it is necessary to improve competencies and to develop entrepreneurial personality. It is therefore essential to add to existing processes the areas of expertise such as self-development, leadership and personality. Research in leadership education brought up U-Theory for developing leadership competences. The result of the research is a new, completely redesigned support and mentoring process for entrepreneurs. This process combines the latest results of the innovation research with the research approaches of the U-Theory by Scharmer.

Key words: leadership education, innovation models, U-Theory, entrepreneurship education

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Tobias Meyhöfer is a doctoral candidate in the Department of Marketing at Chemnitz University of Technology. Markus Schacht is a doctoral candidate in the Department of Marketing at Chemnitz University of Technology. Steffen Jahn is a doctoral candidate in the Department of Marketing at Chemnitz University of Technology. Dr. Sandra Kaminski is related to the Department of Marketing at Chemnitz University of Technology. Cornelia Zanger is Professor of Marketing and head of the Department of Marketing at Chemnitz University of Technology. Her research focuses on marketing communication and marketing for SMEs. Address correspondence to: Chemnitz University of Technology, Faculty of Economics and Business Administration, Department of Marketing, Thueringer Weg 7, 09126 Chemnitz, Germany. E-Mail: [email protected].

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PRINCIPLE TOPIC

One important contribution to cultural, social and economic development is the support of entrepreneurs when creating new ventures. There are several institutions, such as consultancies, technology transfer offices, and university departments who accompany potential (academic) entrepreneurs (Geissler, Jahn & Haefner, 2010). These institutions have developed different models and processes to support the start-up entrepreneur and the founding teams. Most processes focus on imparting knowledge and hard facts, such as creating a business plan, introduction to business administration, finance and marketing. The focus in these approaches is on the business idea and its chance to be launched successfully. Here, a number of parallels with innovation management models occur. Accordingly, business models and market data are regarded the most fundamental inputs to the decision-making process (Kuratko, 2005).

Nevertheless, many founders fail when starting a business or they do not achieve sustainable growth. In our perception this is based, in part, on the fact that new venture creation support is more than innovation management. To be successful in creating a company it is important not only to gain market knowledge and obtain hard facts, but also to improve leadership competencies and to develop entrepreneurial personality. It is therefore essential to add the areas of so called “soft skill development” (e.g., self-development, leadership, and personality) to existing support processes.

The aim of this research is to develop a process model as synthesizing framework that integrates the ideas of innovation models, new venture creation consulting, and leadership education. Building on the innovation research-based Stage-Gate model (Cooper, 2001), a corresponding process that summarizes existing practices of new venture creation support is suggested. This part of the resulting framework enables entrepreneurs to develop competitive business ideas. Complementing this perspective, a special focus on leadership development ensures that nascent entrepreneurs be equipped with a tool kit to constantly deal with changes in the business environment (Scharmer, 2009). The latter view is based on the necessity for today’s entrepreneurs to become perpetual learners (Scharmer, 2009; Schein, 2010).

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The overall perception is hereby that aimed further development of skills within the founder and the founding team creates far reaching positive effects. (Compare overview in Neck et al. 1999) Extensive international research shows that transformational leadership among employees increases motivation, commitment and development causes, and ultimately leads to greater creativity, innovation and business success (Bass 1990; Bass et al. 2003; Chen et al. 2007; Jung, Chow & Wu 2003; Eagly, Johannesen-Schmidt & van Engen 2003; Lowe & Kroeck 1996; Tierney, Farmer & Graen 1999; Vera & Crossan 2004).

By integrating the two perspectives, the synthesizing framework takes into account the necessary criteria for successfully running businesses but takes also into consideration the development of entrepreneurial personality. In so doing, the present paper contributes to existing entrepreneurship theory and consulting practice (Ensley et al., 2006).

In the course of the herewith presented article, we first review literature on innovation management and the venture creation support process. The leadership perspective builds on Theory U for developing leadership competences (Jaworski & Scharmer, 2000; Scharmer, 2009). After the three foundational perspectives have been reviewed and aligned, we combine these views to develop a synthesizing framework of new venture creation support.

LITERATURE REVIEW

Process Models in Innovation Management Research The innovation management research has produced several models to put emphasis on to the several steps from the business idea to a marketable product (Brown & Eisenhardt, 1995; Cooper, 1979; Cooper & Kleinschmidt, 1987; Ernst, 2002; Rothwell & Zegveld, 1985).

The process models for each target position in the normative and descriptive ex-formations of reality are divided. Normative models are often developed from studies which evaluated successfully implemented innovation projects. Recognizable patterns and processes determining the success of these projects resulted in models that included concrete action proposals in the

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sense of standard strategies (eg, Cooper, 1983a; Cooper & Kleinschmidt, 1990). Descriptive models are however, from the observable in the practice process steps (eg, Cooper, 1983b). In addition there are models that divide the innovation process in sequential phases. Referred to as stage-gate process flow models differ in the degree of detailing, the focus set and the research question (Cooper, 1994; Cooper & Kleinschmidt, 1986, 1987, 1990). The Stage-Gate process models can be assigned to different generations (Cooper 1994, Ernst 2002). The first generation of process models in the 1960s, was developed and used as a management tool for the standardization of business processes. The innovation process is split up into discrete phases, after each phase, a management review is held to decide on the progress of the project.

A benefit of this generation of process models was to structure the activities of the innovation process and to standardize, ensuring that each task is in the foreground. A disadvantage of this type of process models is seen in the fact that projects are not push forward up to the particular review decision, which slows down the whole process. Furthermore, the process stops after the production phase and takes into account neither the penetration nor marketing activities that will bring the invention to innovation (Cooper, 1994; Hughes and Chafin, 1996). Therefore, these models are strictly intervention management models.

The second generation is based on the studies of NewProd Cooper and colleagues (Cooper, 1979, 1994, Cooper & Kleinschmidt, 1986, 1987, 1990). In these studies successful and less successful companies are compared and it was detected that successful innovation projects follow a standardized procedure. This generation of process models is interdisciplinary and integrates the marketing and production functions. Each activity must not proceed strictly in a row. Overlaps are allowed to accelerate the process (Cooper, 1994; Cooper & Kleinschmidt, 1990). Rothwell and Zegveld (1985) described in their Coupling model a similar process. In the further developed third generation stage-gate models Cooper (1996) aimed at more flexibility of the models. Sequential running activities that can slow down the process have been integrated into the new process. The phases flow smoothly into one another, single individual activities can be performed simultaneously, to allow the process to accelerate. They are also adapted to the particular project risk (Cooper, 1996).

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Figure 1: The Stage-Gate Model of the Product Innovation Process (Source: Cooper, 2001)

The Process of New Venture Creation Support The process to support potential founders, from concept to successful market operating companies, has a lot of overlap with the innovation process models presented above. Once a potential founder developed the idea and decides to realize this, the idea will be tested for viability and further developed step by step.. This includes the business model creation, its development and testing phase, until it reaches the stage of a market ready product. The most used start-up processes that are used by consultants have focused on the further development of business ideas and specialized on these. With help of workshops, events and individual counseling an idea is developed into a marketable product or service.

Due to the many overlaps with the product innovation process, figure 2 illustrates the venture support process in analogy to the Stage-Gate model as shown in figure 1.

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Figure.2: support and mentoring process for entrepreneurs The transmission of "hard skills” such as e.g. financial planning, development of business plans and a market entry strategy or the development of a marketing and sales strategy are the basis for a successful implementation of business ideas (Neubauer, 2002). Usually it is not enough to focus only on the business idea. For many players the path to self-employment is a blind spot. Expectations and aspirations in the life of a start-up entrepreneur only rarely coincide with what is reported from the field (Klandt, 2006). This deficit will be met by a process model of new venture creation support which includes the findings of innovation research and integrates leadership skills to a further extend. Besides teaching the hard skills to emphasis on personality development should be put on especially the leadership qualities. The process steps and their linkage should take into account the personality of the founder and integrate this into the process additionally to the plain development of the business idea. The requirements for the key skills do not end facing the individual. Above all, team work and team leadership are essential (Kirkman & Rosen, 1999; Manz 1992, Seibert, Silver & Randolph 2004). Especially working in a (virtual) project team requested by the staff to be able to cope with many different and changing employees (Lurey & Raisinghani, 2001). Such teams, however, where the flexible adaptation, coupled with successful social skills are put into practice are not only happier but also more innovative and successful (Mathieu et al, 2008;. Spreitzer, Kizilos & Nason 1997).

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Both transaction and transformation-oriented leadership competencies have a positive impact on the success of start-ups, as evidenced by empirical studies (Ensley, Pearce & Hmieleski, 2006). At the same time these skills in models of entreprenuer education and counseling are not considered essential (Leich & Harrison, 1999; see Witt 1998 for a discussion in the broader economic context) and are only gradually spread (Kuratko, 2005). [Before the integrated framework is developed, the next section reviews U-Theory as a basis for Leadership development]

Leadership development As a starting point, Theory U as developed by Scharmer (2009; Jaworski & Scharmer, 2000) serves as framework to integrate the leadership perspective into new venture support. Leadership, in its simplest definition can be described as “organizing a group of people to achieve a common goal” (Scharmer, 2009), i.e. leadership requires somebody for organizing (who) a process (how) to get results (what).

Scharmer assumes that important leadership skills must include Sensing, Presencing and Embodying (Jaworski and Scharmer, 2000). Scharmer focuses on the individual personality skills, to perceive consciously the environment and stakeholders to address it and to empower one and others accordingly. Proceeding Scharmer says that it is essential to be able to change the perspective which is vital to be able to adapt to new settings. Leaders must be able to respond to new challenges quickly and effectively and to guide well in uncertain times. A rapid and detailed analysis of the current problem from different angles is a success factor for effective leadership (Scharmer, 2009).The consideration and development of these skills are not part of classical training and start-up consultancy. Nevertheless, researches on leadership and entrepreneurship have common roots, such as transferring an idea into a marketable offer. The processes are therefore combinable in principle. (Ensley, Pearce & Hmieleski, 2006).

According to Scharmer (2009), the effectivness of leadership depends fundamentally on the sources of cognition (insights) out of which the leader and his group usually react to specific situations, and on how such reaction is carried out at individual and groupal social fields. Thus, effective leadership is about learning to recognize the habits of attention -which refers

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to sources of cognition usually regarded in any particular business culture- and about being able to improve social interactions for leading the change.

There are four sources of cognition out of which knowledge about the situation is aquired: 1. The old me-world: refers to the source of cognition at which the leader usually reconfirms his knowledge and judgement about the specific situation that is being regarded. He just sees the problem. 2. The current it-world: in this source of cognition, the leader attends the problem out of his expectations, i.e. from a factual point of view. 3. The current you world: is the source of cognition that the leader reaches when his place of perception is moved out of his own boundaries, and locates outside. Listening becomes empathical. 4. The highest future possibility wanting to emerge: when the leader finds himself in this source of cognition, he connects to people and places and things surrounding him as “beings”, out of which something wants to emerge. Listening becomes generative.

Most of times, leaders take into account only the first two sources of cognition for carrying on solutions to problems they face. As result, their reactions use to attack only the symptoms of the problem. But for solving the fundamental issues of the problem, it is necessary to attend it from the third and fourth sources of cognition too (Figure 3).

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Figure 3. Sources of cognition at individual level

In order to access a deeper level of understanding of problems, i.e. going further from the sources of cognition 1 and 2 to the 3 and 4, the leader should expand his pattern of thinking when facing a problem.

According to Scharmer (2009), the capacities described in figure 4 help the leader to extend his own patterns of attention to the sources of cognition 3 and 4.

Figure 4. Individual leadership capacities heading to sources of cognition 3 and 4. Quelle: modified from Scharmer (2009)

DEVELOPING AN INTEGRATED FRAMEWORK OF NEW VENTURE CREATION SUPPORT 9

With Theory U developed by Scharmer, a second process path was added to the process while investigating how founding process, founding consultancy and leadership competencies depend on each other and its contribution to success of the business. The capacity on the part of the client, to obtain a deeper understanding of problems, is a fundamental issue that the process of support should promote during the pre-start-up activities. Thus, the adoption of strategies for promoting the development of the client’s individual leadership capacities described in Figure 5, should facilitate his access to the sources of cognition 3 and 4 during all his leadership activities. Not only his individual leadership capacities for accessing to the sources of cognition 3 and 4 should be taken into account, but also, his capacity to improve the social interactions of his group, so that it can also access to the sources of cognition 3 and 4 as a whole.

According to Scharmer (2009), the leader must lead his group to manage its habits of attention in such a way, that all four sources of cognition are taken into account through the conversing process. In order to do so, a serie of leadership movements must follow (Figure 5)

Figure 5. Serie of leadership movements promoting the groupal conversing process. Quelle: Scharmer (2009)

The application in serie of these leadership movements during the support and mentoring process for entrepreneurs, improves the involved group’s patterns of attention, and enables the members of the group to interact from the sources of cognition 3 and 4 (Figure 6):

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Figure 6. Sources of cognition at group level

Thanks to the support and mentoring process for entrepreneurs regarded here, the client not only improves his leadership capacities by expanding his habits of attention, but also gets the ability to recognize the habits of attention of his working group. He will be able to converse his ideas effectively by leading his group to regard all four sources of cognition through the conversing process, following the five leadership movements. Success of founders in business not only represents benefits to them, but to the society in which these new businesses are established. A lot of organizations related to founding consultancy use to count with collaborators following their own “established” processes. Thus, it is not common to find standardized founding consultancy processes that optimize the transference of knowledge between organizations. Following from this, we have adopted the challenge to develop a commonly accepted process for entrepreuers. Figure 7 illustrates the integrative model of the consultation process established in a graphical form, the model combines the perspectives of the development of ideas with the leadership development. The-This model serves as a starting point for the debate to allow effective and customer-oriented support and guidance of founders and founding teams.

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Figure 7: integrative support and mentoring process for entrepreneurs

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The two-process elements do not run alongside each other or isolated from each other, but are intertwined with each other. These linkages are highlighted by us, experience in many consulting projects and a very special case served as a basis to be able to detect these linkages.

Former entrepreneurs who had experienced consultancies of different consulting agencies (mainly at university level) participated in a survey on the quality and the usability of the experienced consultancy. As a result the transmission of hard facts and basic knowledge were evaluated as good or even very good. But most of the founders and especially those founders who faced large expansion of their business over the past years missed the adequate support for their own personal development, particularly the support for their individual leadership competencies and a transparent and continuous process of the consultancy. Beyond cultural differences of entrepreneurs who benefited from the consultancy support since then, also the different academic as well as job related backgrounds of beneficiaries were very diverse. IT experts, engineers and researchers but also social scientists as well as linguists were clients of the investigated network. The suggested process is permanently developed and evaluated in cooperation with potential founders. Based on the gained experience through our permanent development of entrepreneurship education programs, as well as through the advisory service that we have been bringing to founders for years, we have designed a supporting model that permits us to do a continuously and effective support through the whole previous process that founders face for establishing a firm. Between the individual process steps there are, according to Cooper's stage models of innovation research, so-called gates. In these gates learning objectives in conjunction with the founders (team) are defined and will be discussed. It is not clearly a defined termination criteria, these gates are used instead to reflect what has been learned as well as gives a transparent definition of the next steps. Thus, founder and consultant can adapt their role in the process continuously.

In the Innovation research, there are different ways of Reviewings available with fixed termination criteria (Formica / O'Sullivan 2004; corpse / Harrison 1999). Developing and implementation of a business idea is not only the measurement of the degree of novelty of a business idea (Brockhoff / Zanger, 1993), but also other properties,such as the founding figure, the original team, market size and competition are also of great importance.

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At this point, it is proposed to recognize the judgment of the founder / founding team as a key orientation. This means that teaching of leadership skills is a dialog between founder and adviser and considered the founder consultant existing fears and desires and jointly (team) with the founder onthe future course discussed.

RESULTS AND IMPLICATIONS

The venture creation support process is a proposal to integrate personal competencies such as personal development and leadership competencies but also basic entrepreneurial knowledge in a single transparent process. The integrative model contributes to optimize, standardize and evaluate the founding process. This is realized by placing emphasis on the person behind the business idea giving the entrepreneur a process to hand which focuses on his/her personality traits and personal needs.

In the entrepreneurship research numerous linkages are found between impact research and further improvement of details in the process. The new process helps to structure entrepreneurial process, integrates leadership competencies and strengthens competencies of the founders. In real life entrepreneurs benefit from an effective tool which increases the opportunities for a sustainable foundation of an enterprise.

Conceptual framework of this investigation is innovation process models adapted to founding process and U-Theory by Scharmer (Cooper, 1994; Scharmer, 2009). Experiences from practical founding consultancy are integrated in the newly developed process. Furthermore, parts of it were tested within daily work of an entrepreneurial and international network. The aim of the accompanied network is consulting across national borders and working with different cultures. An interdisciplinary and international approach opened up new business opportunities.

In this context it was necessary to develop a process which allows dealing with new challenges, to work efficiently and to enhance leadership competencies. In the field of innovation management there already exist models which recognize these issues. For this reason an innovative model was selected and amended to the specific requirements for entrepreneurs and consultants. 14

After several feedback loops the third generation of the Stage-Gate process (Cooper, 1994) which is adapted to entrepreneurial process was chosen as starting point. The Stage-Gate model helps to structure the process from idea generation to market entry. The third generation of these models aims at being flexible. Sequential running activities are integrated into the process. Phases flow into one another, several activities can be done at the same time (Cooper, 1994).

The result of the research is a new, completely redesigned support and mentoring process for entrepreneurs. This process combines the latest results of the innovation research with the approaches of the U-Theory by Scharmer. Now there is a process which focuses on the needs of an entrepreneur and combines it with entrepreneurship education and leadership competencies. This process is currently used and will be evaluated in the next few months. Initial feedback from potential founders shows the potential of this proposed process.

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