EXPLAINING THE MATRIX APPROACH TO ENTREPRENEURSHIP
MONITORING: THREE STAGES AND SIX COMPONENTS

The life of a business from gestation, through birth and on to death is a continuum. However, for purposes of abstraction and analysis researchers and research programs studying business permit themselves the luxury of conceptual division into distinct periods. In the same way as it can be useful (as well as problematic) to divide human life into such seemingly clear but contentious phases as ‘infancy', ‘childhood', ‘adolescence', ‘adulthood' and so on. GEM starts with an all-embracing definition of entrepreneurship as the act of conceiving, creating and developing a new business. The national population survey questionnaire then captures data based on the division of the business life stages into one of three categories; start-up, young firm and established firm. These categories are defined by the length of time the business has been paying wages. Each is briefly explained below.

THREE STAGES

• START-UPS. After a set of filtering questions, GEM respondents can be classified as to whether they meet three criteria. (1) Are they, alone or with others exploring various possibilities for creating a new venture? (2) Do they intend to assume partial or complete ownership of any possible or proposed new venture? (3) If a new venture has actually commenced operations, has it been paying wages (or equivalent) to any participants in the venture for no more than three months ? If the answer to questions (1) and/or (2) and/or (3) is ‘yes', then the respondent is classified in the start-up category. Effectively therefore, the GEM Australia's start-up category includes both nascent and active entrepreneurs*: people engaged in contemplated or actual ventures that have not been operating for more than three months.

• YOUNG BUSINESSES. The young** business stage embraces businesses still in the hands of at least one of their founders and that have paid wages for greater than three but no more than 42 months (3.5 years).

• ESTABLISHED BUSINESSES. GEM's established business category embraces businesses still in the hands of at least one of their founders and that have paid wages for greater than 42 months, (3.5 years).

* The GEM Global Executive Report in 2005 commenced using the term ‘nascent' to describe entrepreneurs in this category. In the opinion of the Australian team, the category description more aptly fits the term ‘start-up' as it is the intent of those in this group to commence the business while including some that already have.

** The GEM Australia team uses the term ‘young' for businesses aged three to 42 months whereas the GEM executive report and some other countries use the term ‘new' businesses. It has been our experience that many readers of the first two GEM Australia reports found that because a start-up was by definition ‘new' in common parlance, the attempt to limit ‘newness' to a specific timeframe after creation of the business was confusing. Confusion disappeared when we used the term ‘young' instead.

SIX COMPONENTS

Hindle (2005) argues that the collection of GEM data can be productively organised under six categorical headings that have credence in the entrepreneurship research literature and take account of the empirical limitations of current GEM empirical data collection procedures. These components (conceptually considered as the rows of a matrix) can be combined with and applied to each of the three stages of business evolution (conceptually considered as the columns of a matrix). The resultant schema can give a systematic and reasonable approximation of national entrepreneurial activity in the year under study. The approach can be summarised first by a notional equation and second by a tabular matrix.

The equation analogy (applicable to each stage of the entrepreneurial process) argues that:

National Entrepreneurial ACTIVITY = PARTICIPATION + MOTIVATION + INNOVATION + GROWTH + FINANCE + CAPACITY

1. PARTICIPATION. It is entirely legitimate to regard the participation rate (the percentage of a population engaged in the various stages of the entrepreneurial process) as a primary and foundational component of national entrepreneurial activity. If no one engages in start-up or the later stage business, then clearly, there is no entrepreneurial activity. But participation is a necessary not a sufficient condition for describing the entrepreneurial activity of a given nation in a given year. There are at least five others components worthy of serious consideration and discussion.

2. MOTIVATION. It is not only important to know the quantitative fact that people start businesses, it is also helpful to know the qualitative reasons why they do so. Accordingly, a second component in building up a picture of total entrepreneurial activity is motivation . Unless people are motivated or driven to create a new business they will not do so. GEM research reports the type of motivations driving business creators and owners as being either necessity based or opportunity based . In Australia, we have extended the analysis of motivation across all three stages of business involvement to reveal a comparison between them.

3. INNOVATION. The third component required for understanding the entrepreneurial (or otherwise) nature of new business creation in a given nation (as compared to other nations) is the innovative propensity of the entrepreneurs and the ventures they establish and develop. In many definitions of entrepreneurship (most having close affiliations with the work of Joseph Schumpeter) innovation (broadly meaning the act of giving commercial application to any new idea***) is the essential feature that distinguishes a genuinely entrepreneurial venture from ‘just another business'. So, if GEM research can give us meaningful data on innovation (and it can and does) it would be a mistake to ignore it when discussing total entrepreneurial activity. GEM allows us to look at three aspects of innovative propensity: product novelty, competitor differentiation and use of technology.

4. GROWTH. A fourth component in building a picture of total entrepreneurial activity should concern the growth orientation of firms. Many definitions of and approaches to entrepreneurship (stretching back to David Birch's characterisation of abnormally high growth potential ventures as ‘gazelles') stress the importance of commitment to high growth as a distinguishing feature of a truly entrepreneurial venture.

5. FINANCE. A fifth critical component of creating and developing an entrepreneurial venture in a nation is the ability to finance it. The GEM population survey provides certain information pertinent to this important aspect of national entrepreneurial activity.

6. ENTREPRENEURIAL CAPACITY. Finally, there can be no pretence that ‘total' or ‘national' entrepreneurial activity has been even summarily covered without addressing the issue of entrepreneurial capacity . Simply stated, this is the ability of the people involved in a new venture to do what is required to make their new venture an entrepreneurial success. Entrepreneurial capacity therefore comprises the collective characteristics, experience, knowledge and skills embodied in the venture's human and capital resources. GEM data permit some insights into national entrepreneurial capacity.

*** See Schumpeter [1911]2004: 57-95

SYNTHESIS: THE NATIONAL ENTREPRENEURIAL ACTIVITY MATRIX

Combining data of these six components of entrepreneurial behaviour (as matrix rows) across the three stages of business (used as column headings), permits us to build up a comprehensive assessment of national entrepreneurial activity for any nation in any year.

Table 3 summarises the matrix approach and presents The National Entrepreneurial Activity Matrix. The cells indicate the range of data and comprehensive discussion provided by GEM Australia homepage along with analysis and commentaries, research articles and the current year's Action Focus.

Table 1 - The National Entrepreneurial Activity Matrix. (Source: Hindle 2005)
		START-UP	YOUNG FIRMS	ESTABLISHED BUSINESSES
	Participation Rate	•	•	•
	Motivation	•	•	•
	Innovation Propensity	•	•	•
	Growth Orientation	•	•	•
	Financial Support	•	•	•
	Entrepreneurial Capacity	•	•	•

THE EARLY-STAGE ENTREPRENEURSHIP INDICATOR

While historically, for purposes of international comparison, the GEM project has distinguished three stages in the evolution of a new business it has also placed specific emphasis on two (start-ups and young firms) by combining them into one index of early-stage participation: Percentage of Early-stage Participation (PEP) index. This index reflects entrepreneurship as dealing with the dynamics of initiation and early growth of a new business venture. The early-stage index is used as a primary reference point throughout the GEM data and in Australia we make use of this as one indicator while making selective distinctions between start-up and young businesses when considered useful and/or salutary.