FACTORS INFLUENCING START-UP PROCESS RESULTS:

LONGITUDINAL STUDY OF CZECH ENTREPRENEURS

Martin Luke, Jan Zouhar
ABSTRACT
Longitudinal studies of early-stage entrepreneurial activity help us understand the causal effects
of a variety of factors influencing the future outcomes of this activity. The theory of new
business foundation is, however, far from developed. The aim of the paper is to analyse various
factors influencing birth and discontinuance of nascent and early-stage entrepreneurial activity.
Compared to previous Czech studies, this paper is based on the most complete sample and
serves as well as a robustness check of previous findings. We use data on 371 early-stage
entrepreneurs that come from two longitudinal studies conducted between 2011 and 2015 in the
frame of the Global Entrepreneurship Monitor project. Entrepreneurs were interviewed in three
to four subsequent waves and asked questions regarding their entrepreneurial activity and its
outcomes. We employ logistic regression to analyse the effects of various factors influencing
outcomes of early-stage entrepreneurial activity. We confirmed that fear of failure, start-up
duration and previous start-up experience influence outcomes of nascent entrepreneurship.
Previous start-up experience increased the likelihood of both entrepreneurial discontinuation
and actual launch. There was also a significant influence of a year in which data were gathered.
We argue that better economic conditions (lower unemployment, higher GDP growth) increase
the likelihood of discontinuation in nascent entrepreneurs, but decrease the likelihood of exit
for operational business. The former group in those conditions find a job more easily, whereas
the latter group persists as it operates in more favourable market situation. We also analysed
various factors potentially influencing satisfaction with entrepreneurship, but found no
significant results besides the role of a year of data gathering. Overall, the paper provides added
value for our understanding of early-stage entrepreneurial dynamics.
Key words: start-ups, nascent entrepreneurs, early-stage entrepreneurship, firm
discontinuance, economic conditions, Czech Republic
JEL Classification: L26, O31
1

INTRODUCTION

This paper seeks to find support for findings from previous studies on the process of early-stage
entrepreneurship (e.g. Luke, Zouhar, 2016). It aims to better understand why are some startup entrepreneurs successful in launching their new business while others discontinue. A
significant ratio of nascent entrepreneurs exit their entrepreneurial activities and the same is
true for new ventures (e.g., Parker, Belghitar, 2006; Reynolds, Curtin, 2008; Gelderen van,
Thurik and Bosma, 2006). Thus, it is important to accumulate original evidence based studies
on nascent entrepreneurial activity. Such studies are needed as the theory of early-stage
entrepreneurship is underdeveloped and research findings so far are not fully convincing
(Davidsson, & Gordon, 2012). The paper builds on previous studies (Luke, & Zouhar, 2013;
2015; 2016) but incorporates a larger sample size and the time frame of more years.
2

THEORETICAL BACKGROUND

There are different theories explaining why nascent entrepreneurs decide on launching a new
firm or discontinuing from such activity. Classical economic theory explaining the deaths of
new firms deals with liability of smallness and liability of newness (e.g., Cressy, 2006) and is
positioned on the level of firms that try to compete against their older, bigger and thus more
experienced and better positioned counterparts. Newer theories focus on the decision making
of the individual (based on Kahneman & Tversky, 1979) and operationalize the opportunitycost concept, e.g., introducing the threshold model of firm-closure (Gimeno et al., 1997). It
means, that there are different reasons to close new firms such as recognizing better options,
preventing further losses or experiencing bankruptcy. Withdrawal from the start-up process is
thus not seen as a neccessarily negative outcome (e.g. Khan, Tang, & Joshi, 2014; DeTienne,
2010). Previous empirical studies described various factors that influence the outcomes of earlystage entrepreneurial activities. These factors will be shortly described in the following section.
2.1 Factors influencing nascent entrepreneurship outcomes
Davidsson and Gordon (2012), in their state of the art review of nascent entrepreneurship
research, identified previous start-up experience as one of the main factors influencing nascent
entrepreneurship outcomes, as identified in previous studies (e.g., Delmar & Shane, 2006). On
the other hand, recent study based on Czech data (Lukes & Zouhar, 2013) found no significant
role of previous start-up experience in venture emergence, a similar finding with Gimeno et al.
(1997) study. Nascent entrepreneurs with higher levels of human capital have higher
opportunity costs and must therefore expect higher rewards associated with their new business
in order to stay self-employed (Brderl, Preisendrfer, & Ziegler, 1992). As the research
investigating how ex ante expectations of nascent entrepreneurs influence ex post outputs is
missing to a large extent (Cassar, 2010), we include, in line with (Luke, & Zouhar, 2016) ex
ante employee expectations in the analysis as the proxy for potential rewards expectations.
Another potentially important factor influencing the success of early entrepreneurial efforts is
business planning (Delmar, Shane, 2003). Metaanalysis conducted by Brinckmann, Grichnik
and Kapsa (2010) concluded that business planning is beneficial, however contextual factors
pose a significant limit for the relationship. Further, new firms are founded by solo
entrepreneurs or by entrepreneurial team. Parker and Belghitar (2006) found that
entrepreneurial team is less likely to make a transition to actual venture when compared with
solo founders. Teams are, on the other hand, more likely to have higher ambitions for their startups (Davidsson, Gordon, 2012).
Parker and Belghitar (2006) identified that a relatively large group of nascent entrepreneurs
stayed in pre-launch phase for a long time without making the decision to launch or exit. The
longer this period is, the less likely they are to create a new venture (Townsend, Busenitz, &
Arthurs, 2010) or to discontinue (Luke, Zouhar, 2013). In a recent study, Luke and Zouhar
(2013) emphasized the importance of fear of failure. People who feared of failure more
probably terminated their start-up efforts in the subsequent period.
Finally, the trend covering the year in which respective data gathering took place is incorporated
in order to account for systematic changes in entrepreneurial environment over time. Gender,
education and city size are used as control variables.
2.2 Satisfaction as the outcome of early-stage entrepreneurship
Block and Kollinger (2008) found out that necessity based entrepreneurs cannot get
satisfaction and that financial success is the most important determinant of start-up

satisfaction. However, with some exceptions (van Gelderen, van der Sluis, & Jansen, 2005;
Block, & Kollinger, 2008, Bianchi, 2012), entrepreneurial satisfaction of start-up entrepreneurs
has not yet received much attention in the literature. Thus, we include the satisfaction with
entrepreneurship as one of our outcome variables in order to investigate the role of various
factors on satisfaction with entrepreneurship in its early phases.
3

SAMPLE AND METHODS

3.1 Sample
The data set used in our analysis is based on a longitudinal survey that combines two samples
of 159 and 212 early-stage entrepreneurs identified in Global Entrepreneurship Monitor project
carried out in the Czech Republic in 2011 and 2013. The sampling procedure was based on
randomized phone calls, see (Luke, Jaklov, & Zouhar, 2014) for more details. These
entrepreneurs were subsequently questioned in yearly follow-up interviews up until 2015.
Tab. 1 - Number of observations for a longitudinal analysis: number of entrepreneurs who
entered the longitudinal study, based on year of first interview, year of data gathering and
entrepreneurial state. Source: own data.
First interviewed in 2011
Data gathering in year:

2011 2012 2013 2014

First interviewed in 2013

2013

2014

2015

Nascent entrepreneurship

96

41

14

138

36

14

New entrepreneurship

63

91

64

47

74

119

98

27

34

10

57

14

159

159

112

65

212

212

126

Discontinued entrepreneurship
Celkem
3.2 Variables

Our dependent variable was the entrepreneurial state, coded into three different states:
nascent, new, and discent state. In the first interview, in line with GEM methodology, nascent
entrepreneurs were defined as individuals doing specific steps towards foundation of a new
business who have not paid any salaries yet or paid them for less than three months. New
entrepreneurs were those who paid salaries or received rewards from their business for more
than three but less than 42 months. The possible transitions between the states in the follow-up
years include transitions from the nascent state into nascent, new or discent states and from new
state to new or discent states. The nascent new transition was established based on the
reported revenues and number of employees; see (Luke & Zouhar, 2016) for more details.
Independent variables include start-up duration (i.e., years passed from the beginning of startup activities), solo entrepreneurship (i.e., 1 = single-person without co-owners, 0 = start-up
team), the presence of a business plan, fear of failure and previous start-up experience (1 =
yes, 0 = no for these variables), and employee expectations (i.e., log of the number of
employees expected 12 months after the date of survey). Demographic control variables include
gender (1 = female, 0 = male), the highest level of education (1 = post-secondary education,
0 = lower level of education), and place of residence in Prague or Brno, two largest cities in
the country (1 = yes, 0 = no). Finally, we included the year (trend) variable to account for
changes in between years, e.g. given different economic conditions.

3.3 Model specification

We used standard discrete-time event history models to study the likelihood of transitions to
different entrepreneurial states. We divided the person-year observations into those in the
nascent and the new phase (see Table 1). For the transition from a nascent state, we applied the
multinomial logit model of competing risks suggested by Allison (1982); for transitions from
new entrepreneurship state, we used an analogous model based on binomial logistic regression.
In order to avoid reversed causality, we applied the principle of time separation of the
dependent and independent variables (e.g., Davidson & Gordon, 2012), i.e. the independent
variables were all lagged by one year. In line with other recommendations by Davidson and
Gordon (2012), we used imputation techniques to reduce the loss of efficiency in regressions
due to missing values. Missing values analysis revealed that a large part of observations is
incomplete due to start-up duration, employee expectations and business plan variables. We
used the multiple imputation suite in Stata 13 to implement the method of chained equations,
described e.g. in (White, Royston, & Wood, 2011).
4

RESULTS AND DISCUSSION

Our results primarily serve as a robustness check of findings from previous studies (Luke,
Zouhar, 2015; Luke, Zouhar, 2016) that were based on smaller sample sizes. Besides that, we
also newly present results for the analysis of satisfaction with entrepreneurship.
As can be seen in the first two columns of Table 2, there are multiple factors causing the
discontinuance from nascent entrepreneurship. Firstly, this study confirms previous results
(Luke, Zouhar, 2015; Luke, Zouhar, 2016) showing that the length of involvement in
entrepreneurial efforts plays the role. Entrepreneurial activity is more likely discontinued either
shortly after conception of nascent entrepreneurship or, on the other hand, after a longer period
of time. This suggest, that the decision to discontinue comes fast for a subgroup of
entrepreneurs, whereas for other subgroup it takes quite long. It can be expected, in line with
Parker and Belghitar (2006) that these entrepreneurs rather dream about the business and not
do much in reality. Secondly, we confirmed previous findings that fear of failure increases the
likelihood of discontinuance from nascent entrepreneurship. Thirdly, we confirmed a result first
found in (Luke Zouhar, 2015) that people with start-up experience more likely discontinued
from nascent entrepreneurship. It suggests that individuals with more entrepreneurial
experience are faster in the evaluation of a business idea. They may try to get quick feedback
from customers, iterate their business models and, based on feedbacks from customers and
potential business partners, decide whether it makes sense to proceed with the idea (Sarasvathy,
2009; Maurya, 2012). On the other hand dreamers stay involved with the weak idea, are not
able to make it run and this way waste their time and effort that might be better invested to
some alternative course of action. Finally, the results confirmed that in later years nascent
entrepreneurs discontinued more often. A possible explanation may lie in existing labour
market opportunities. The level of unemployment dropped by two percent in between 2012 and
2015. Labor market offers now better chances to find a job, thus, in line with Gimeno et al.
(1997) less people stay in early-stages of entrepreneurship with insecure future income.

Tab. 2 - Transitions from nascent entrepreneurship: multinomial logistic regression

influence of variables on likelihood of discontinuation (Models 1 and 2) and actual launch
(Models 3 and 4). Source: own data.
Nascent Discent

Nascent New

(1)

(2)

(3)

(4)

0.446***
(0.167)

0.472***
(0.171)

0.183
(0.148)

0.166
(0.150)

Start-up duration

1.967***
(0.643)

1.920***
(0.647)

0.622
(0.688)

0.676
(0.685)

Start-up duration squared /

100

29.14**
(11.96)

27.98**
(12.04)

1.522
(14.35)

2.689
(14.26)

Year (trend)

Previous start-up experience

1.008***
(0.356)

0.994***
(0.361)

0.594*
(0.317)

0.631**
(0.321)

Expectations: nr. of
employees

0.0552
(0.176)

0.0555
(0.178)

0.164
(0.158)

0.168
(0.159)

Fear of failure

0.662*
(0.364)

0.605*
(0.368)

0.384
(0.365)

0.363
(0.368)

Solo entrepreneur

0.193
(0.356)

0.231
(0.360)

0.0965
(0.323)

0.120
(0.326)

Business plan

0.264
(0.348)

0.255
(0.350)

0.184
(0.309)

0.174
(0.311)

Control variables
Prague or Brno

0.705
(0.450)

0.0940
(0.350)

Post-secondary education

0.112
(0.387)

0.234
(0.332)

Female

0.103
(0.352)

0.0593
(0.319)

276

276

276

276

Notes: (i) Results based on 20 chained-equations imputations of start-up duration, employee

expectations and business plan. (ii) Standard errors in parentheses. (iii) * p < 0.1, ** p < 0.05,
*** p < 0.01.

Tab. 3 - Transition from new operational entrepreneurship: binomial logistic regression

influence of variables on likelihood of discontinuation. Source: own data.
New Discent
(1)

(2)

Year (trend)

0.322*
(0.191)

0.478**
(0.216)

Start-up duration

0.439
(0.803)

0.678
(0.867)

Start-up duration squared /

100

12.49
(14.64)

16.23
(15.87)

Previous start-up experience

0.297
(0.389)

0.350
(0.410)

Expectations: nr. of
employees

0.352
(0.245)

0.387
(0.258)

Fear of failure

0.409
(0.483)

0.447
(0.498)

Solo entrepreneur

0.438
(0.456)

0.632
(0.469)

Business plan

0.199
(0.396)

0.101
(0.407)

Control variables
Prague or Brno

1.152*
(0.599)

Post-secondary education

1.200**
(0.467)

Female

0.134
(0.417)

250

250

Notes: (i) Results based on 20 chained-equations imputations of start-up duration, employee

expectations and business plan. (ii) Standard errors in parentheses. (iii) * p < 0.1, ** p < 0.05,
*** p < 0.01.
When we look at columns 3 and 4 of Table 2, it is evident that whereas entrepreneurial
discontinuance can be effectively predicted, the identification of factors influencing the
transition from nascent entrepreneurship to operational business is much more difficult. The
only factor influencing likelihood of actual launch is, in line with a finding from a previous
study (Luke, Zouhar, 2015), previous start-up experience. It should be however noted that
previous start-up experience is significant both for entrepreneurial discontinuance and actual
launch. The conclusion is that entrepreneurs with previous experience are sooner able to decide
whether to launch or quit. This finding is a potentially important theoretical contribution that
may add to our understanding of behaviour of serial entrepreneurs.

Table 3 incorporates transitions of entrepreneurs who already owned and managed a new
business. As in the previous study based on a limited data set (Lukes, Zouhar, 2015),
entrepreneurs with postsecondary education more probably discontinued entrepreneurial
activity. People with higher education have much better options on Czech labour market and
are therefore more likely to discontinue if the business is not developing really well (cf.
performance threshold theory by Gimeno, Folta, Cooper, & Woo, 1997). Further, less exits
experienced entrepreneurs in Prague and Brno, probably due to higher purchase power in these
larger cities. Such finding may suggest a relative advantage of starting up in larger cities.

Tab. 4 - Satisfaction with entrepreneurship (5-point Likert scale) ordinal logistic regression
with random effects. Source: own data.
(1)

(2)

Year (trend)

0.657***
(0.125)

0.649***
(0.127)

Start-up duration

0.0673
(0.0626)

0.0603
(0.0620)

New entrepreneurship

0.127
(0.267)

0.0917
(0.266)

Previous start-up experience

0.0309
(0.260)

0.0458
(0.260)

Expectations: nr. of
employees

0.0112
(0.153)

0.0240
(0.154)

Fear of failure

0.109
(0.324)

0.111
(0.318)

Solo entrepreneur

0.401
(0.275)

0.365
(0.272)

Business plan

0.0504
(0.241)

0.0427
(0.239)

Control variables
Prague or Brno

0.300
(0.285)

Post-secondary education

0.417
(0.282)

Female

0.173
(0.272)

313

313

Notes: (i) Results based on 15 chained-equations imputations of start-up duration, employee

expectations and business plan. (ii) Standard errors in parentheses. (iii) * p < 0.1, ** p < 0.05,
*** p < 0.01.

Interestingly, the influence of year trend on discontinuation has the opposite sign for transitions
from operational business when compared to transitions from a nascent stage. However, the
explanation is logical. Whereas GDP declined annually by 1.0 percent in 2012, in 2015 it
achieved a satisfactory growth of 4.3 percent. Thus, whereas nascent entrepreneurs have no
income from entrepreneurship and better economic conditions primarily mean better options to
find a job, for already operational entrepreneurs better conditions mean higher chances of
successful business operations as their customers have more money to spend. Other factors did
not play a significant role in explaining exits from operational start-ups.
As can be seen in Table 4, no factors had an effect on satisfaction with entrepreneurship besides
a year trend, i.e., in recent years, entrepreneurs were more satisfied with their entrepreneurial
activity. This may be again related to the fact that economic conditions in the country
significantly improved. Thus, good overall economic climate may have both subjective (due to
a higher general optimism level) and objective (due to a better development of a start-up)
positive influence on how entrepreneurs experience their business endeavours.

CONCLUSION

This study served as a robustness check of previous findings from longitudinal studies of earlystage Czech entrepreneurs and utilised the most complete dataset so far. The findings confirmed
the role of fear of failure, length of involvement in entrepreneurial activities and previous startup experience in influencing outcomes of nascent entrepreneurship. The role of start-up
experience lies primarily in enabling a person to decide faster whether to launch or to quit startup efforts. New and interesting finding is related to the role of differences between the years in
which the data were gathered. Compared to previous studies, this study incorporated more years
of data gathering in which the economy was improving and was thus able to deliver new
findings. Given the improving conditions of Czech economy, we argue that better economic
conditions increase the likelihood that nascent entrepreneurs abandon their efforts and find a
job, whereas new entrepreneurs decrease the likelihood of discontinuance of their firms as they
operate on more favourable markets. Besides year trend, we found no other factors predicting
the level of satisfaction with entrepreneurship.
ACKNOWLEDGMENT
This paper was supported by internal grant agency of Faculty of Business Administration,
University of Economics, Prague, nr. IP300040.
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CONTACT INFORMATION
Martin Luke
Department of Entrepreneurship, University of Economics, Prague
Nam. W. Churchilla 4, 130 67 Prague 3, Czech Republic
lukesm@vse.cz
Jan Zouhar
Department of Econometrics, University of Economics, Prague
Nam. W. Churchilla 4, 130 67 Prague 3, Czech Republic
zouharj@vse.cz