From Becoming To Being: Measuring Firm Creation

Over the past decade, research efforts to address a lack of knowledge concerning the process of firm formation have intensified. Surprisingly, though, measurement of the primary dependent variable has been ignored. In aiming to establish a basis for measuring firm creation, we identify and address three critical deficiencies in the literature: a lack of definition, inappropriate theoretical underpinnings, and, weaknesses in the research design. Beginning with a general meaning of the term 'new firm,' we use a process-oriented event-driven theoretical perspective to propose an operational definition consisting of three key dimensions: recency or newness, a form of organization, and sales. The appropriateness of our proposed multidimensional measure (that also assesses a firm's sustainability) is explored as part of a larger research project studying Canadian nascent entrepreneurs. As members of the Entrepreneurial Research Consortium (ERC) we use standardized methods to identify and track these nascent entrepreneurs over a four year period. Since the research was designed with a capacity to test different theoretical perspectives, the instruments contain a range of items that have been used as indicators of start-up. A comparison of the proposed measure to selected single item measures indicates, among other things, that making the transition from becoming to 'being' a new firm involves meeting two key criteria: being newly operational and being sustainable. Implications, limitations, and suggestions for future research are discussed.