Entrepreneurs

As entrepreneurs can often be very protective of their ‘creations’, one could be led to the conclusion that sharing part of the venture may not be an attractive proposition for the entrepreneur. Although this is true, one has to remember that entrepreneurs do share their ventures in order to raise capital. In fact, entrepreneurs with less financial means are likely to surrender more control to capital investors (Hellmann, 1998). If there is one key investor then this could cause a management dipole, with the entrepreneur and the investor at each end, which could potentially create a lot of tension; even force the entrepreneur out of the venture he started. (Hellmann, 1998; Oakey, 2003). In the skills brokerage business model, instead of cash a venture receives skills by private skill investors who would have less bargaining power compared to venture capitalists. Skills brokerage can also be a better alternative to venture capital when venture capital is primarily aimed to skill-oriented services, as the cost of renting or buying skills will be higher.

Skills Brokers

Skills brokerage may also be attractive proposition for serial entrepreneurs, who do not necessarily lack capital resources, and would not mind co-sharing a number of ventures. It may also be attractive for entrepreneurs of failed ventures: “an entrepreneur who believed that a weakness in marketing was the key to the failure of a past venture may be more likely to develop contacts or form a management team that overcomes that skills gap” (Hoang & Antoncic, 2003).

In any way, the model could also be based on a fraction of future returns, rather than equity, so this should not be a detrimental barrier to the success of the business.
One could argue that the skills brokerage business model would be more attractive to small and medium enterprises as:

1. SMEs are more flexible and adaptable to changes.
2. SMEs are more willing to take risks in order to gain higher returns.
3. SMEs need to be more innovative in order to survive and prosper in the demanding information-driven market places.

Large firms may have an abundance of knowledge and technology they are not always the best vehicle to recognise the opportunities of the future (Park, 2005). Even so, they could still use the model as a ‘platform’ for future investments by allocating resources to create the skills broker. The corporate skill broker would then invest in the venture as normal, limiting the risk for the parent company within certain boundaries. There could also be tax benefits for all parties involved since there is no money changing hands, until the venture is successful.

Business Support Organisations & Policy Makers

Support services often focus on generic skills and services in an effort to accommodate clients with different requirements. Although this is valuable when it comes to developing enterprising attitudes, it is not necessarily beneficial for entrepreneurship: “one size does not fit all” (Lyons, 2000). In such a case highly specialized knowledge and actions are often required if a project is to be successful. According to Davidsson and Honig (2003) the value of all forms of standard recipe is likely to be very limited, and the real needs are often beyond the capacity of a generalist advisor. “The implications are that individuals are taught to engage in activities that are not necessarily productively linked toward successful outcomes.” (Davidsson & Honig, 2003)

This explains why business support services often subsidies specialised services. The challenge is though that they can only support a limited number of ventures, as they have limited funds. The skills brokerage business model can replace (or work in parallel to) subsided services and grant provisions by bringing together service providers and entrepreneurs.

The research by Davidsson and Honig also suggests that national and regional governments should consider “developing business centres that focus on the facilitation of community and networking activities, thereby increasing each nascent entrepreneur’s probability of finding the idiosyncratic inputs s/he needs”. Again, the focus is on the individual needs rather than generic business activities, and as a result a more specialised approach is required.

In addition, skills brokerage can form an alternative mode of employment which promotes entrepreneurial freelancing. This could be used to tackle unemployment by actively encouraging, through policy, new ventures that are based on this model. Offering grants to such projects could provide them with an incentive to start skills brokerage-based ventures, especially when it comes to community venturing and non-profit organisations or when the aim is to boost start-up rates and employment in under-developed regions.

Such initiatives, especially new, high technology-based firms, have become major policy objectives of virtually every developed nation. This is probably a result of the “realisation that the failure of the European economy to create jobs is not in the traditional manufacturing or public sector jobs, but in the services and the ‘new economy’, where job creation is more in the hands of small entrepreneurs than in the hand of large corporations” (Fonseca, Lopez-Garcia, & Pissarides, 2001). Models such as skills brokerage could play pivotal roles in economic growth, by encouraging start-ups and job creation.

Business Incubators

Davidsson and Honig’s business centres could also be extended to incubators. Favourable rents for space and equipment are important, but “incubators should focus more on the development of business networks that would help companies survive in the long run”. (Bollingtoft & Ulhoi, 2005) These networks could consist of traditional networks or skills brokerage networks. Incubators may subsidise or even offer free incubation services in exchange for access to the venture. The returns could be much higher, with the incubator being transformed from an accommodation provider to a skills broker and an investor. This is what Allen and Rahman (1985) looked into with their study: “an incubator becomes more than just a physical arrangement with a specific geographical location where a new venture can minimize start-up costs by accessing affordable space, shared services, and business assistance”. The incubator can provide the space and business services and the skills brokers the business assistance.

Venture Capitalists

The skills brokerage business model can benefit entrepreneurs looking for venture capital for activities that can not be provided through skills, e.g. buying of equipment, as it can increase the chances of a project attracting funding. First of all, by bringing skills in-house, the entrepreneur minimises the requirements for capital, which would require smaller scale finance. More importantly, the in-house skills and the broker’s networks and experience can significantly raise the venture’s credibility, increasing the chances of getting funded.

In fact, venture capitalists often provide skills, experience, networks and credibility to a new venture as part of the funding process (Davila, Foster, & Gupta, 2003), in an effort to shape the future in ways that improve the outcome of their investment (von Burg & Kenney, 2000). “Given the often limited business competence of the founding entrepreneur, venture capital advice, in building business relations, hiring the right personnel and marketing product etc., becomes a key complementary expertise to entrepreneurial efforts.” (Kanniainen & Keuschnigg, 2004) Hence, from the venture capitalists’ perspective, skills brokerage can not only reduce the funding requirements of new ventures, but also increase their chances of survival. Still, “in spite of initial scale effects, a venture capital investor should avoid advising too many companies as its supporting role might subsequently deteriorate” (Kanniainen & Keuschnigg, 2004).

Another important issue is that high-tech SMEs can find it difficult to attract capital compared to their larger competitors. In the UK where technology represents over a quarter of the total investment by the venture capital industry, for the 1997-1999 period, formal venture capital only represented 1.3% of external finance to new high tech SME’s (Lockett, Murray, & Wright, 2002). In the US the National Survey of Small Business Finances (NSSBF) indicated that only 1/3 of the 4% of the corporations that attempted to raise private equity from new outside investors over a three year period were successful (Fenn & Liang, 1998). The above statistics clearly demonstrate that SMEs need to come up with alternative ways of funding or ways of making themselves more attractive to venture capitalists.

Finally, it is interesting to note that raising the venture capital fund itself is also based significantly on skills: “Not only it is difficult to raise a new venture capital fund without tract record, but the skills needed for successful venture capital investing are difficult and time-consuming to acquire” (Kanniainen & Keuschnigg, 2004). One could argue that when the entrepreneurs seeks external funding, what he actually seeks is proven fund raising skills: “with the venture capitalist the entrepreneur recruits an active investor who will assist in the construction process”(von Burg & Kenney, 2000).

Academics

Although a great deal of research has been undertaken in the area of entrepreneurship there are still many open questions. First of all there exists no distinct theory of entrepreneurship; nor a widely accepted definition for entrepreneurship. This has complicated interpretation of the entrepreneurship-related literature, as each analysis depends on the author’s interpretation (Alvarez & Barney, 2004; Carland & Carland, 1988; Davidsson, 2003; Gartner, 1988; Low, 2001; Low & MacMillan, 1988; Shane, Locke, & Collins, 2003; Shook, Priem, & McGee, 2003). These approaches “have led to a selection of samples of entrepreneurs that are hardly homogeneous” (Gartner, 1988). Instead of focusing on who the entrepreneur is and why entrepreneurs start new ventures, the skills brokerage business model is focused on how activities that lead to a venture starting-up and surviving can be facilitated.

In addition, “the bulk of research, which comprises much of our knowledge of entrepreneurship, suffers from selection bias, the result of sampling only successful emergent entrepreneurs or enterprises” (Davidsson & Honig, 2003; Krueger, Reilly, & Carsrud, 2000). This is of greater importance when it comes to markets where association with unsuccessful projects is avoided at all cost in order to avoid the stigma of failure: “the popular business press, in general, is far more interested in the route to success, however difficult this may have been, than in the unsuccessful entrepreneur” (Dodd, 2002). The skills brokerage business model will allow studying the skill brokers’ decision-making process and their criteria to invest or not. In doing so, and by monitoring a venture’s progress with or without skills investment our research could help establish a relationship on the value of skills in newly created ventures.

The skills brokerage business model can also provide a unique insight into the start-up process following entrepreneurs from the very early stages. Most importantly it can do so in real time (Gartner, 1988). This is of importance as most of the data about entrepreneurs and their ventures is collected retrospectively, giving rise to “a potential bias due to memory decay and hindsight bias, or rationalization after the fact” (Amit et al., 2001; Davidsson & Honig, 2003; Landstrom, 1998; Shook et al., 2003)

Another interesting point is that the above can be done in the context of multiple projects. As a skill broker can invest in multiple ventures, it should be possible to deduce the effect that the project itself may have on the broker.

In addition, the model could allow researchers to study conditions in which potential entrepreneurs actively search for opportunities and draw comparisons with conditions in which potential entrepreneurs discover opportunities without actively searching. (Shook et al., 2003) It could also allow studying the role of networks in facilitating entrepreneurship and their effects on venture performance (Hoang & Antoncic, 2003).

Finally, the skills brokerage business model can contribute to empirical entrepreneurship research by studying induced entrepreneurial situations and experiments and simulations (Davidsson, 2003). In our case the entrepreneurial experiment is not just a laboratory experiment, as it has been previously proposed (Shook et al., 2003), but real venture creation.