Role of Human Capital in New Ventures

ROLE OF HUMAN CAPITAL IN NEW VENTURES 1. INTRODUCTION With the increase in the rise of enterpriserial enters, it is necessary to understand the factors that determine success or failure of these ventures. One of such factors that have been determi request by exploreers is tender-hearted beings ceiling of the United States (Bruderl, Preisendorfer and Ziegler, 1992). This report considers the function of the human swell element in a clamsup blood.Based on a collation and analysis of previous research utilizations on human none bad(p) in the entrepreneurial field, it was discovered that the various aspects of anchorers human capital have a role to play in attracting venture capital and improving the execution of instrument of the venture. 2. LITERATURE REVIEW 2. 1 Human Capital Human capital refers to the skills, abilities, knowledge acquired through work and educational populates (Baron and Shane, 2008).The concept of human capital has been underpinned by several theor ies among which the guess of entrepreneurship, resource-establish theory and human capital theory and these theories would be discussed. The theory of entrepreneurship dictates emphasis on the fact that the entrepreneur has the accountability of decision reservation (Casson, 2005). Thus, the entrepreneur is to analyse relevant information which would be employ in making business decisions (Ga nonakis, 2012). The recognition of markets for the productions and services ar dispel of the decisions to be made and would therefore determine a unattackcapables progress and accomplishment.Casson (2005) further urges that entrepreneurs need to have the right professional skills and work examine as it is these competencies would impact upon performance. The resource based theory (RBT) places value on resources which is argued to be a source of combative advantage for the firm (Barney, 1991). Human capital is identified as one of such resources. In particular, Barney (1991) argues t hat a firms management team moveister be indispensable, rare and imperfectly imitable and has the content for producing a perpetual competitive advantage.Alvarez and B utilisationnitz (2001) examine the relationship between RBT and entrepreneurship. They suggest that entrepreneurship necessitates the stops cognizance of opportunities, the ability to obtain the resources to utilize the opportunities and the ability of the firm to fuse homogenous inputs into heterogeneous prohibitedputs. They further identified that entrepreneurial awareness, perception, knowledge and the ability to organise resources as resources in their own right. These two theories therefore place signifi poopce on the capabilities and resources of the entrepreneur.A theoretical openation of how these capabilities crowd out be measured is provided by human capital theory which was pioneered by Becker in 1964. The theory implies that an respective(prenominal)s human capital is the skills and knowledge that can be of use to an organization and as such, employees salaries/wages was viewed as a return on the investment in human capital. The theory provides claims that the entrepreneurial team who have more experience tend to perform much better than those with less experience (Shrader and Siegel, 2007).This theory categorises the characteristics of an entrepreneur into general and unique(predicate) human capital. 2. 1. 1 General Human Capital General human capital refers to skills acquired through formal education, training and work experience which can be transferred to other jobs in the market. The educational level of founders has been considered to be vital for a firms performance (Ganotakis, 2012). Education can provide the entrepreneur with a professional foundation and greater self-assurance as it is supposed to provide scenarios which encourage creativity and problem-solving ability.However, other results showed a ostracise relationship with growth and performance (Haber and R eichel, 2007 Bosma et al, 2004 Dichon, Menzies and Gasse, 2008). According to Deakins (2005), education does not influence growth but it may assist in making critical decisions. As such, education could be assumed to be more important for younger entrepreneurs who may not have a lot of experience. It is argued by Shrader and Siegel (2007) that the experience of the founders would upkeep them in making informed choices. Experience is also seen to influence business ideas and increase efficiency (Deakins, 2005).In contrast, some research whole kit have also found negative relationships between work experience and firm formation and also performance (Ganotakis, 2012 Diochon, Menzies and Gasse, 2008). Ganotakis (2012), claims that this could be as a result of an over-confidence of the founders in their knowledge restraining them from gathering more information. 2. 1. 2 Specific Human Capital These are those skills which are specific to a particular work context and thus it might no t be transferred to other professions. As such, these skills can assist the entrepreneur directly with managing the new venture (Ganotakis, 2012).These include entrepreneurial experience, industry-specific experience, managerial capabilities and technical experience. Industry specific experience has been found to have a electropositive effect on performance and the development of new ventures (Bosma et al, 2004 Dimov, 2010 Gimmon and Levie, 2009). Capelleras et al (2010), claim that this experience positively impacts the population of ventures, but has little influence on their growth. It is believed that founders with the same sector experience would have a better knowledge of the opportunities and can benefit from past business ties.Entrepreneurship specific experience implies that the entrepreneur should have a previous experience in starting a business, running a company or having social station of an entrepreneurial association (Bosma et al, 2004 Baron and Shane, 2008). This experience does not have a direct effect on new venture growth but can aid in the pursuit of opportunities (Dimov, 2010). Managerial experience is usually linked with the ability to organise resources and make strategic decisions (Ganotakis, 2012). It has been found that there is a positive relationship between managerial experience and performance (Ganotakis, 2012 Gimmon and Levie, 2009).However, Deakins (2005) believes that those with prior managerial experience may have a higher level of income they desire and may be unlikely to set up their own business as there is an uncertainty of a constant income flow especially at the motherliness stages of the venture. Technical experience is gained in a specialised field or profession. Though Shrader and Siegel (2007) placed emphasis on this experience as reusable in strategy implementation, research carried out by Ganotakis (2012) revealed that technical experience did not have a positive effect on performance.Thus, such experience sh ould be accompanied by managerial experience. 2. 2 Human Capital and the Entrepreneurial Venture The theoretical background and explanation of key concepts above has provided an insight into the eccentric of human capital. From literature, the importance of human capital is highlighted and three roles of human capital in an entrepreneurial venture can be identified and these would be explored for this purport of this paper. Firstly, human capital can enhance in making and executing strategic decisions.Secondly, human capital can improve the performance of the new venture. Bruderl, Preisendorfer and Ziegler (1992) argue that better human capital increases the ability of the firm to attract customers and capital. From this, a third role can be identified which is human capital can enhance venture financing. These would be discussed in relation to past research and relevant theories. 3. METHODOLOGY The research was carried out by reviewing and analysing past research works on the top ic of human capital as it relates to entrepreneurial ventures.The selection criteria for the resource materials used were peer-reviewed scholarly journal articles. The time frame selected was from 2000 to 2012. This criterion was used so as to get reliable and up-to date information on the subject matter. 4. DISCUSSION This section explores the three factors identified in the foregoing. Decision making is very vital to a new venture. The success of a firm depends on the decisions made. The strategies adopted by a firm would reflect its competencies and would determine its competitive advantage which is line with resource-based and theory of entrepreneurship.Industry specific and technical experience of the founding team is argued to be valuable in the formulation and implementation of strategies and as such, they can make more informed decisions (Shrader and Siegel, 2007). These aspects of human capital could enhance decision making as knowledge of the market and industry would impl y that the founder(s) is conversant with the emergence of gathering the relevant information. This experience is likely to lead to faster decision making (Forbes, 2005). Managerial capabilities could also be said to influence decision making as the entrepreneur would have experience n managing a firm and identifying appropriate markets (Ganotakis, 2012). It is crucial for new ventures to acquire financing for their operations at the start of the business. A higher human capital has been believed to attract capital (Bruderl, Preisendorfer and Ziegler, 1992 Baum and Silverman, 2004). In particular high educational qualifications can give signals to venture capital investors (Behrens et al, 2012). The close for this may be that the investors believe that the founders can use their educational knowledge in managing the company and therefore they judge that their prospects are better.Seghers, Manigart and Vanacker (2012) also found out that business education and prior experience in ac counting and finance increases a founders knowledge of financing alternatives. As such, the founder is able to access different sources of funding based on such knowledge. Another factor that affects venture financing is the social network ties the founder has (Zhang et al, 2012). Such networks would modify the founding team encounter throng who could give them the required funding. Industry-specific experience is also vital in developing broad networks.Investments in human capital are widely believed to impact performance (Unger et al, 2011 Bosma et al, 2004 Rauch, Frese and Utsch, 2011 Bruderl, Preisendorfer and Ziegler, 1992). An investment in industry specific and entrepreneurial experience increases the chances of success for a new venture. Entrepreneurship specific experience positively affects the profitability of the firm as the founder has acquired skills from previously owning a business and would be able to use these skills effectively in the new venture (Bosma et al, 2 004).However, the research carried out by Haber and Reichel (2007) on high tech industries, highlights that education and previous experience had no effect on performance. As such, it may be argued that technical experience is more relevant to industries which use a more advanced technology as they require a high level of expertness and technical knowledge but as Ganotakis (2012) highlighted, technical experience should be complemented with managerial skills. subscriber line education and management capability is thus very satisfying for the sustainability and survival of new ventures (Gimmon and Levies, 2009).Drawing on all that has been discussed, human capital characteristics especially industry specific and business skills would help in making more economical strategic decisions which would also influence the venture performance. Business and finance skills could increase access to finance and good management of finance is crucial to profitability. Also, the social networks t he founder has would enable him access finance and tap into knowledge of others which could affect the firms prospects. 5. CONCLUSION This report examines the importance of human capital to the new venture.The parting of this study is that it explored the effect of general and specific human capital attributes on the performance of new ventures, venture financing and strategic decision making based on review of past research works. An interesting finding is that industry-specific experience as opposed to general experience and managerial experience are found to play a major role in all three areas while education seems to be least relevant to decision making and performance but quite vital in attracting investors.The implications to prospective entrepreneurs are that they should enhance their business, managerial and commercial skills as this is vital to the survival of new ventures. Also, it is necessary for them to use their present organisation positions to build network ties as this can enable them tap into knowledge and gain access to finance. This study is limited as it cogitate on a narrow range of past research works and not only all human capital characteristics were considered. Future research should snap more on the impact of the all aspects of human capital most especially on strategic decision making.A meta-analysis of a wide range of research works could also be carried out. PERSONAL REFLECTION STATEMENT Entrepreneurship is an interesting subject and the reason for this is that at the core of entrepreneurship is the fact that something new is involved. It could be a new market or a new product. It generally involves starting a new business venture. I understood that in starting a new business venture, one of the first things to consider is the opportunities available. Opportunities arise from the environment and in this age, quite a number of them arise from advances in technology.It is necessary to consider the market for the product or servic e as for a product to sell in the market it has to meet individual, societal or business needs. It is useful to take into consideration the competitors that are currently there. Some ventures can be pushed out of the market by other stronger companies such as monopolies particularly in a mature market. One of the concepts I have come to appreciate is the personality of the entrepreneur. Firstly, entrepreneurs are risk takers.They are very determined and spontaneous individuals who are passion and vision driven. They require intelligence both practical and social. They should be social beings and have the ability to persuade others to commit to the venture. If a team of entrepreneurs like to come together to create a new venture, they must have complementary skills and must be compatible. An entrepreneur would have to consider if there is a need to hire a few staff. They can take advantage of the opportunities that social networking presents in getting useful personnel and contacts. I learnt that finance is also a very important factor as one could start a business out of a brilliant opportunity and experience financial shortages. An entrepreneur would need to consider if he has enough funding from the planning stage and actually taking the product to the market through to the product development. Also, there is the need to consider if the business would be profitable because many people start new ventures based on great ideas and inventions with delusions of grandeur without seeing the business in the ideas. at that place are some concepts that are particularly fascinating. One of which is the concept of effectual reasoning which opposes the usual entrepreneurship process and implies that entrepreneurs do not always have a predetermined goal but the goals are dependent on the resources available to them. This course was enlightening and transcends beyond just starting a new ventures. There are implications for me as a future manager because I am motivated to f ind new ways of solving problems and exploring opportunities that surround my organization.The concepts of business strategies and maintaining a competitive advantage are important not only in entrepreneurial startups but in other areas of business. Now I appreciate people as a crucial resource for both entrepreneur ventures and a rich source for identifying new markets, new processes, new ideas, new opportunities, new product that will lead to new and improved levels of productivity. References Alvarez, S. A. and Busenitz, L. W. 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