management support and the performance of entrepreneurial start-ups

MANAGEMENT SUPPORT
To assess the variables, we fi rst asked all respondents to evaluate on a scale from one (“very
well informed”) to fi ve (“poorly informed”) how well the relevant investment managers were
informed about the start-up (Higashide and Birley (2002)). We also asked founders and
managing directors to estimate the percentage of total working time that the investment
managers dedicated to their company. Finally, the respondents had to evaluate the investment
managers’ functional and industry experience as well as their familiarity with start-up problems
and their social competencies on a scale ranging from one (“very good”) to fi ve (“insuffi
cient”) (Cooper, Gimeno-Gascon, and Woo (1991); Betsch et al. (2000); Wong (2002)).
In addition to using characteristics of investment managers, we also measure the quality
of management on the basis of a subjective evaluation of the founders or managing directors
of start-up companies. For this purpose, we asked all respondents to rate the quality
of the management support which they received on a scale ranging from one (“very good”)
to fi ve (“insuffi cient”). Even though such a subjective evaluation has its weaknesses, particularly
with regard to respondents’ bias, it is the only way of directly measuring service
quality, and has been successfully applied in similar studies to assess, e.g., the quality of
consulting services (Hoff mann (1991); Eff enberger (1998)).
Performance measures: Due to the specifi c characteristics of entrepreneurial start-up companies,
no single measure can fully mirror the performance of these companies. For this
reason, empirical studies normally use a set of diff erent indicators to measure the performance
of newly founded companies (Schenk (1998); Damodaran (2001); Achleitner and
Bassen (2003)). Here, we use a similar approach. We measure the performance of entrepreneurial
start-ups on the basis of four diff erent indicators, two objectively assessable measures
– absolute EBITDA and earnings growth – and two measures that require subjective evaluation
by the respondents – their assessment of goal achievement and their evaluation of
the eff ect of management support on their fi rms’ performance. To determine the objectively
measurable performance indicators, we asked all respondents to classify their companies
according to the EBITDA level that they had reached in 2001 into categories ranging
from one (“below 0 €”) to fi ve (“more than 2 mill. €”). Pre-test interviews had shown that
this EBITDA range was adequate and that an absolute fi gure such as EBITDA would be
more easily accessible than would relative fi gures such as ROA or ROE, which are normally
preferred in empirical research. At the same time, we do not consider that using absolute
EBITDA fi gures is a major problem, because most companies in the sample were of comparable
size, so that the diff erence between absolute and relative fi gures is negligible.
In addition to these absolute fi gures, we also asked respondents to classify their companies
according to the EBITDA growth rates that they had reached in the three years 1999
through 2001 into categories ranging from one (“growth of more than 50 percent”) to nine
(“decline of more than 50 percent”). We use the median of these categories over the three
years as a second performance indicator. We chose the median values over three years to
control for outliers in single years (Merz, Weber, and Laetz (1994); Davidsson and Wiklund
(2000); Damodaran (2001); Jessen (2002)). To determine the more subjective performance
measures, we fi rst requested the respondents to assess the level of goal achievement of their
companies in the years 1999 through 2001 on a scale ranging from one (“fully achieved”)
to fi ve (“not achieved at all”). We use the median of the ratings over these three years as the
SBR 59 April 2007 138-159 145