Critical Decisions at the Early Stage of Start-ups: A Systematic Literature Review

doi:10.21203/rs.3.rs-2755974/v1

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Critical Decisions at the Early Stage of Start-ups: A Systematic Literature Review

https://doi.org/10.21203/rs.3.rs-2755974/v1

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This systematic literature review (SLR) identifies and ranks the decisions that can be considered critical for entrepreneurs at the early stage of the start-up process. The sample (N = 45) derived from the SLR contained primary publications from the A + and A journals of the VHB-Journal ranking. Deductive and inductive approaches were used to define the critical decision domains. Then, the relevance of the domains was evaluated using the frequency of the selected studies. A key implication for founders is to understand that not all decisions that could be taken in the early stage may be critical for success. Most critical seems to invest time and effort in the, what we label the internal business and human core (Product Definition and Core People) and the external business and human core (Market segment selection and Partnerships). This study depicts an integrated view of the fragmented field of critical decisions in the context of early-stage start-ups by using a SLR. Thus, it creates value for theory-building and practitioners in entrepreneurship.

start-ups

early-stage start-ups

critical decisions

key decisions

entrepreneurship

systematic literature review

Entrepreneurship is one of the key economic factors driving economic growth (OECD, 2004; Kritikos, 2014). Thus, the influence of the entrepreneurial sector on the economy must not be overlooked, as entrepreneurship can function as a staging point for economic (Caree & Thurik, 2010) and even social development (Pacheco et al., 2010). With their intrinsic motivation, work ethics, and intelligence, founders have exploited opportunities presented to them with a significant effect. Entrepreneurs have historically altered the shape and character of global and national industries and markets. With their pioneering spirit, they have been forging new products, introducing new organisations, and coming up with new technologies to ease customer problems, transforming societies and economies alike (Pahuja, 2015).

With 11 of 12 start-ups still failing (Startup Genome, 2019), there is a need to support the new venture development process. Nevertheless, “the problem of explaining why some [ventures] succeed while others fail is crucial to the study of economic development” (Casson, 2003, p. 10). Still, it has not been answered to the full extent yet. This gap may be because mainstream economists and scholars alike have seen entrepreneurship as an aggravating aspect in explaining how economies and markets function, thereby neglecting this crucial matter.

Academic research has been studying and examining decisions from various perspectives and in different fields of interest. Scholars like Harrison (1975), Mintzberg et al. (1976), and Friday-Stroud and Sutterfield (2007) studied the decision itself. Decision-making has been investigated by authors like Delbecq (1967), Schwenk (1984), and Farsi et al. (2014). The decision-making process has also been subject to academic research by scholars like Mintzberg et al. (1976), Dean and Sharfman (1996), and Elbanna (2006). Even critical success factors in corporations have been studied (Belassi & Tukel, 1996; Harris, 2019). However, limited academic attention has been given to critical decisions in start-ups, especially in early-stage start-ups, even though "initial founding decisions have significant consequences for the subsequent development of new ventures", according to the literature (Beckman & Burton, 2008; Colombo & Piva, 2012; Doutriaux, 1992; Nerkar & Shane, 2008) as cited in Tornikoski and Renko (2014).

The literature stresses the importance of good decision-making skills for obtaining economic success. In particular, entrepreneurs can be seen as workers focussing on using judgement for economic decisions. As better judgement results in innovative advantages and exploitable arbitrage, it also lowers the misallocation of resources and operational risks (Casson, 2010). Entrepreneurs must constantly make decisions in their start-ups to deal with all sorts of obstacles and keep their competitive edge. While some decisions are trivial, others are crucial for the new venture. However, little is known about critical decisions in early-stage start-ups. Though the question remains, what are those decisions, especially those critical decisions, entrepreneurs must face and overcome in their start-ups, to be among the one out of ten start-ups surviving and eventually becoming successful?

No scholarly paper has systematically investigated and answered the critical decisions entrepreneurs in early-stage start-ups should take. Thus, based on this challenge, our study aims to answer the following research questions: What are the critical decision domains at the early stage of start-ups?

This study seeks to compile the decisions of high importance for start-ups at the early stages based on existing literature. Therefore, a Systematic Literature Review (SLR) is conducted within the scope of the framework by vom Brocke et al. (2009), Tahir et al. (2016), and Kitchenham and Charters (2007). Since each SLR is tailored to a certain degree to the field of study and its subsequent research questions, only a few explicit methods and standardised guidelines are applicable (vom Brocke et al., 2009). Figure 1 typifies the process of a systematic review with its three main phases: the planning of the SLR, the conducting of the SLR, and the report of the SLR (Tahir et al., 2016).

While all types of SLR share the same core elements, such as giving essential insights into a particular scholarly topic and compiling and critically examining different academic published research sources, they can differ according to their specific study. SLR may be argumentative, integrative, historical, methodological, systematic, or theoretical (Jahan et al., 2016). Following the taxonomy of literature reviews by vom Brocke et al. (2009), the conducted literature review focuses on research outcomes, has an integrational goal, is methodologically organised, utilises a neutral representation, targets general scholars and practitioners, and uses a representative coverage.

As a significant last step during the literature review planning, the systematic review protocol was developed. It is a “plan that describes the conduct of a proposed systematic literature review” (Kitchenham & Charters, 2007, p. 7). As a first step, the keywords of the SLR are conceptualised based on the core concepts occurring in the research questions (Table 1). An additional synonym search for the core concepts is performed using a dictionary to complement the keywords to reach a broad spectrum of potentially relevant terms. This concept of using search statements and extending them by using synonyms and related terms is described by Rowley and Slack (2004) as building blocks. These blocks were then used to create the search query. Tahir et al. (2016) emphasise that effective search strings are critical when searching for potentially relevant primary literature.

Table 1

Core concepts derived from the research questions and keywords for the search
Core concepts	Keywords
Entrepreneurship	Entrepreneur*
Start-up	Start-up, start up, startup, small business, small firm, venture, new venture
Early Stage	Early-stage, early phase, early-phase
Decision	Decision, decision-making, decision making, selection, choice
Key decision	Key Decision, key-decision, strateg, challenge, critical

On these terms, the following keyword scheme was applied in the publication titles, abstracts, or keywords: everything with the words entrepreneur*, start-up, new venture, early-stage AND decision*, decision-making, selection, choice OR key decision, strateg*, challenge, critical (see Table 2 for the search query).

Table 2

Search Query used in the databases
Query
FIND (Entrepreneur* OR Start-up OR Start up OR Startup OR “small business” OR “small firm” OR venture OR “new venture” OR “Early Phase” OR early-phase OR “early stage” OR early-stage) AND ( (decision* OR decision-making OR “decision making” OR selection OR choice) OR (“key decision” OR key-decision* OR strateg* OR challenge* OR critical) ) IN (Abstract OR Title OR Keywords)

In order to conduct a high-quality literature review, it is crucial to assess the quality of primary studies in the field under investigation (Kitchenham & Charters, 2007; vom Brocke et al., 2009). While “there is not only a vast amount of potentially relevant sources but also a great deal of the literature of diverse quality” (vom Brocke et al., 2009, p. 2208), the quality of articles can be ensured by choosing and searching the appropriate electronic databases (Jahan et al., 2016) as well as by reviewing high-quality journals (Vom Brocke et al., 2009).

To ensure the appropriateness of the chosen electronic databases (Jahan et al., 2016), they had to satisfy the following scholarly criteria:

Access: unrestricted access and full text must be granted to all articles retrieved by the search query.
The option to use search strings and filters: advanced search options increase the quality and efficiency of a search by allowing the use of special commands, Boolean operators (e.g., NOT, AND, OR), truncation of words, and the specification of the location of search terms within the article (Rowley & Slack, 2004).
Quality: the database should be mentioned in several other SLR’s by scholarly authors and provides high-quality journals to ensure a high stock of quality journal articles (Ferratt et al., 2007; Kitchenham & Charters, 2007; Levy & Ellis, 2006; Melville et al., 2004; Willcocks et al., 2008)

Scopus and EBSCOhost were selected as suitable databases for the literature review. At least two different databases should be chosen since “no single source finds all the primary studies” (Kitchenham & Charters, 2007, p. 25). The journals were selected considering the internationally renowned German VHB-Journal 3 rating by the German Academic Association for Business Research. According to the research context, the following fields were recognised as relevant: entrepreneurship, entrepreneurial decision-making, business, and strategic management. For the initial search, only journals rated A + or A were considered. We did not limit the search to a particular range of dates to avoid restricting the initial search results. A list of journals is presented in Appendix A.

Criteria for selecting studies (see Table 3) were defined using the research question before the execution of the search and refined through the search process as recommended by Kitchenham and Charters (2007).

Table 3

Inclusion and exclusion criteria for the search process.
Inclusion criteria	Exclusion criteria
● Fulfils journal ratings A + or A ● Final publication ● The study covers the topic of critical decisions in start-ups at the early stage	● Duplicate reports of the same study ● Not available in English ● Access to the full paper is not available ● Not related to the subject of study ● Does not fulfil all the quality criteria

To ensure high-quality primary studies, they must be published in top-ranked journals. Furthermore, all studies must be final publications to have been peer-reviewed. No changes are made afterwards to the primary studies, which would result in misleading data. Next, the exclusion criteria for this SLR are presented in Table 3. A vital exclusion criterion mentioned by Kitchenham et al. (2009, p. 9) is the exclusion of “duplicate reports of the same study.” If “several reports of a study exist in different journals, a complete version of the study … [should be] included in the review” (Kitchenham et al., 2009, p. 9). If duplicates are not excluded, they will lead to severe bias in the literature review results (Kitchenham & Charters, 2007). Since English is the leading scholarly language worldwide, all non-English primary studies were excluded. Also, full access to the entire article was required not to be excluded immediately. Furthermore, any primary study that did not meet the quality criteria was excluded.

The SLR is started using the formed search query (Table 2) to Scopus’s search database, revealing 6,940 articles. Relevance to the topic and relevance to the research questions are ensured by reading through the articles’ title, abstract, keywords, and, if necessary, the conclusions of the studies. Likewise, the search was conducted in the EBSCOhost to cover the 14 journals, adding 9,251 studies. The initial search was conducted on the 3rd and 10th of December 2019 and repeated in February 2022 to update the review, resulting in 16,191 documents retrieved by the search engines.

After applying the inclusion and exclusion criteria (see Table 3 and Fig. 2), 361 relevant primary studies were left for further evaluation. As recommended by Kitchenham and Charters (2007), the conducted search was saved in the researcher’s profile on the databases and retained for a potential reanalysis later on. Then, each study is first examined for relevance to the selection criteria in its title and, if not discarded, in its abstract to refine the search results. The conclusion was also considered when the title and abstract provided insufficient information, as Brereton et al. (2007) suggested. Articles were included if they addressed a particular area related to the research questions.

Additionally, the studies must at least meet one of the quality criteria defined, according to Kitchenham and Charters (2007). We set three quality criteria that ensure that the study answers at least one of the research questions. The implemented quality questions are:

Q1: Does the study determine the key or critical aspects for founders at the early stage of the start-ups?
Q2: Does the study create awareness among practitioners of the critical decisions of founders in the founding process?
Q3: Does the study propose a specific method or framework to support founders in finding the right decisions at the early stage?

To avoid the problem of inexact inclusion or exclusion applied to the articles, they were examined by two researchers who discussed and explained their decision to reach an agreement whenever a difference arose. The same two researchers also performed the selection of the articles. Articles were selected only if both reviewers agreed. The paper was discussed in detail whenever a discrepancy arose until all disagreements were resolved. Out of the 361 articles, 18 were ranked as relevant by the reviewers. Subsequently, for these 18 articles, a manual in-depth review of the full text was performed. After the in-depth review, one of the 18 articles was excluded due to very little relevance to the research question. This step led to 17 remaining primary articles for data extraction. That way, the chances of inaccurate categorisation were minimised. The process of having at least two separate reviewers is endorsed by several authors (Frehe & Teuteberg, 2017; Jahan et al., 2016; Kitchenham & Charters, 2007). In 74,8% of the cases, the researchers consistently evaluated the selection. That indicates that in 91 out of the 361 primary studies, a dialogue between the researchers was needed to determine the inclusion or exclusion of the particular article, obtaining satisfactory interrater reliability (Cohen's Kappa) of greater than 65% (Cohen, 1960; Döring & Bortz, 2016).

The high requirement of the restriction that the articles be published only in A + and A ranking could lead to a flawed result since it is highly probable that not all relevant research is published in high-ranked journals. In order to overcome this limitation, a forward and backward search was performed without this restriction (Frehe & Teuteberg, 2017).

The forward and backward searches were conducted months after the initial search query, ended in January 2021, and updated between March and April 2022. They resulted in an additional 1,993 articles to assess their relevance through the criteria defined. The selection process was carried out analogously to the selection process for primary studies. Twenty-eight articles, 18 from the backward search and ten from the forward search, were added to the study set. The general search process led to 45 studies, termed the definitive set. The data extracted for the analysis are:

Author, title, year, journal
Research area
Type of study
Research contribution
Mentioned decision domains
Critical decision domains mentioned in the study.

The initial query of the study retrieved more than one hundred thousand results of papers distributed in the last five decades without any filter or constraint. Figure 3 shows the number of publications in relation to the topic to illustrate its relevance and evolution. However, using all the defined criteria, the number of selected publications per year is considerably regular (one to two studies per year). The 45 relevant articles were derived from 22 different journals. The earliest study in the selected set was published in 1986, and the latest in 2021.

Creating decision domains or categories was essential as a starting point for the study. A detailed discussion was conducted among the researchers regarding each category, and ambiguities were ironed out until an agreement was reached. By using an inductive and deductive categorization process, initial categories were derived based on theoretical content. During the data analysis, new categories could be discovered or regrouped. Parsons and Wand (2008, p. 839) say that “classification holds that classes do not exist independently but are constructed as useful abstractions of the similarities of the classified phenomena.” For this purpose, an analysis was conducted among the authors using the recommendations of Al-Debei and Avison (2010, p. 364):

Included topics are “thematically similar to each other, that is, they communicate the same or very similar semantics and ideas.”

The topics “have contextual relationships that complement each other; thus, they become more useful if clustered.”

The categories “as a whole articulate a unique compositional aspect” of the decisions of entrepreneurs at the early stage.

As an initial point of the categorisation analysis and to reach the criteria mentioned by Al-Debei and Abison (2010), the following business modelling frameworks were used: Business Model Canvas (Osterwalder & Pigneur, 2013), the Business Model Cube (Lindgren & Rasmussen, 2013), and the Systemic Business Modeling approach (Lau & Terzidis, 2019). Afterwards, an analysis was carried out to make the categories consistent with the MECE (mutually exclusive and collectively exhaustive) principle (Chia-Yen & Bo-Syun, 2018).

The nine categories representing the critical decision domains are Core people, Financial decisions, Funding, Legal decisions, Market segment selection, Partnership, Product definition, Type of channels & relationships, and Type of organisation & culture.

3.1. Critical Decision Domains

In this section, we present the derived decision domains, the definition, as well as the subsumed papers, and their described effects on these domains on the start-up process in the early stage. Figure 4 illustrates the derived categories as well as their ranking based on the frequency in the literature sample. A short description and the corresponding frequency are also included. While creating an order of relevance or ranking of the decision domains, we recognise that all these domains are so-called critical for the founders at an early stage of the start-up. It is relevant to note that this search was made considering critical decisions for early-stage founders as search terms. The percentages in Fig. 4 were calculated by dividing the absolute frequency for each domain (e.g., 15 for product definition) through the absolute frequency of all domains (80).

$$\frac{{A}{b}{s}{o}{l}{u}{t}{e} {f}{r}{e}{q}{u}{e}{n}{c}{y} {o}{f} {p}{a}{r}{t}{i}{c}{u}{l}{a}{r} {d}{e}{c}{i}{s}{i}{o}{n} {d}{o}{m}{a}{i}{n}}{{A}{b}{s}{o}{l}{u}{t}{e} {f}{r}{e}{q}{u}{e}{n}{c}{y} {o}{f} {a}{l}{l} {d}{e}{c}{i}{s}{i}{o}{n} {d}{o}{m}{a}{i}{n}{s}}={R}{e}{l}{a}{t}{i}{v}{e} {F}{r}{e}{q}{u}{e}{n}{c}{y} {o}{f} {d}{e}{c}{i}{s}{i}{o}{n} {d}{o}{m}{a}{i}{n}$$

Equation 1

All the calculations are presented in Table 4. It could be argued that dividing through the absolute frequency of all domains instead of the total number of papers bears the risk that articles with a high number of researched dimensions have a much higher weight in the results. However, in the present study, this risk is limited by the fact that the absolute number of domains for each paper only ranges from one to four.

Table 4

Calculation of the relative frequency of the decision domains
Critical Decision Domain	Calculation (See Eq. 1)
Product definition	15/80 = 0.1875
Core people	15/80 = 0.1875
Partnerships	12/80 = 0.1500
Market segment selection	11/80 = 0.1375
Funding	9/80 = 0.1125
Type of organisation & culture	7/80 = 0.0875
Type of channels & relationships	6/80 = 0.0750
Financial decisions	3/80 = 0.0375
Legal decisions	2/80 = 0.0250

The following subsections present the different categories of this study in detail, including the findings from the extracted data.

3.1.1 Product Definition (15 studies)

The concept involves decisions related to the creation of value for customers and stakeholders, which encompasses all activities in the new product development process, such as the ideation process, the development of a value proposition, the introduction of a minimum viable product, the life cycle assessment and technical aspects of the product. During our literature review, 15 different articles categorise this domain of decisions as one of the most crucial for start-ups at the early stages, along with the Core People category. The relevance of product development has long been a critical issue. A very early statement is given, for example, by Robinson and Pearce (1986). They point out that strategic problems associated with developing product lines are significantly more critical to a CEO (chief executive officer) in entrepreneurial manufacturing firms. Duchesneau and Gartner (1990) provide another early insight into this topic, which points out that entrepreneurs in successful companies have a broad and clear business idea that provides motivation (or will) to the organisation. In the same line, McCann (1991) determined that in his study on growth patterns in young ventures, the highest-performing ones pursue an internal innovation process through R&D for product breakthroughs.

Even though product definition involves focusing on the value proposition, an adequate value proposition cannot be achieved without focusing on the customer, at least in a customer-driven approach. In this regard, already in 1997, the study of the founder characteristics and start-up process by Sapienza and Grimm (1997) concluded that the “customer focus is positively related to performance.” While the above study is limited to a specific industry, this conclusion has been validated over time by publications such as Osterwalder and Pigneur (2013) that put the value proposition as the centre of the framework to develop business models in entrepreneurship. This decision domain has also been the subject of study due to its importance in the entrepreneurship literature. In the study by Dencker et al. (2009), the approach of innovating in product lines is presented as a key relevant learning method in business. This category is also one of the five critical decisions Van Cann et al. (2013) mentioned in their book “Software Business Start-up Memories: Key Decisions in Success Stories.”

Furthermore, Marion et al. (2012) express that understanding product development is critical to avoiding company failure in the new venture context. In his manual for start-up founders, Blank and Dorf (2012) put their focus on the challenge of product development for the customers. They express this idea by centring attention on the relevance of “getting out of the building”; trying, testing and validating what the founders want to offer.

In light of the fact that this category is also a function of the scope of the opportunity, researchers such as Tornikoski and Renko (2014) have found evidence that suggests the characteristics of the initial opportunity impact the start-up process. In addition, exploiting potential opportunities can be achieved by searching for and finding venture ideas (De Carolis & Saparito, 2006) and increasing entrepreneurs' chances of acting on future opportunities (Wood et al., 2017, as cited in Shepherd et al., 2019). Development of the idea or opportunity was one of the most frequently studied areas in Davidsson and Gruenhagen's new venture creation analysis (2020). In addition, Chen et al. (2021) made a significant contribution by determining the importance of new product performance as a competitive advantage for new ventures. The most recent study found that the business model, in which the product definition is a central part, “explains the significant variance in ROA (return on assets) and market share, indicating that it is comparable to industry effects in importance” (Isaksson et al., 2021).

3.1.2 Core People (15 studies)

Selecting and hiring the people who will play a vital role in the development of a start-up (core management team) or people who are critical to the activities carried out by the start-up falls under this domain. This domain of decisions was positioned as relevant as Product Definition in our literature review, with 15 different articles that mention it as a critical decision for start-up founders in the early stages. The decision domain of core people has been an area of interest for scholarly start-up research since the 1990s. During this time, Cooper and Gimeno-Gascon (1994) stressed the influence of human capital on both survival and growth (number of partners contribute to the growth and industry-specific know-how contributes to both), while Sapienza and Grimm (1997) found a positive correlation between founders' general education and their start-ups’ performance, while Burton et al. (2002) point out how critical social capital and experience for entrepreneurs.

Dencker et al. (2009) have concluded that the team members’ pre-entry knowledge and pre-entry management experience indirectly increase the company’s survival. Similarly, in a longitudinal study, Löfsten (2016) has found that the entrepreneurial business behaviour of the founders impacts the company's survival. More recent studies (Song et al., 2008) have considered this issue a success factor for new ventures. In another aspect of this decision domain, recent studies have found that finding skilled co-founders plays a critical role in increasing commercialisation rates and revenues for early-stage businesses (Astebro & Serrano, 2015). Researchers have observed that the pre-entry experience of the founders boosts the ability to integrate knowledge and learn faster about the environment, leading to a higher possibility of product adaptation and, therefore, a higher performance (Utterback & Suarez 1993; Suarez & Utterback, 1995; Furr, 2019). In Blank and Dorf's (2012) team handbook, they emphasize the importance of favourable characteristics and positive team cultures, such as people who do not fear failure, who are open to learning and discovering, and who are comfortable with uncertainty, chaos, and change. As part of describing what makes for a successful team, Reymen et al. (2015) emphasize that team members should be capable of shifting between decision-making logics (causation vs effectuation) as a critical entrepreneurial capability.

3.1.3 Partnerships (12 studies)

All decisions that affect the formation of strategic alliances and the creation of value networks that the start-up needs in order to execute its activities can be categorized as partnerships. Those activities cannot or would prefer not to be performed by the start-up (Blank & Dorf, 2012). According to this study, these types of decisions are critical during the venture creation process, thus ranking second in the order of relevance, with eleven studies highlighting the importance of these types of decisions. In 1991, scholars recognised entrepreneurs as “embedded in a social context, channelled and facilitated, or constrained and inhibited, by their positions in social networks” (Aldrich & Zimmer, 1986; Granovetter 1985 as cited in Dubini & Aldrich, 1991). Networking as a central element of the entrepreneurial process was the focus of this study, which analysed the different types of functions associated with networking and how entrepreneurs can take advantage of them. In another study, in which the growth patterns, technologies, and financial strategies of 100 young companies were analysed, the relevance of joint ventures and alliances was highlighted, significantly to gaining access to distribution channels and new markets (McCann, 1991). In their study on strategic networks and entrepreneurial ventures, Stuart and Sorenson (2007) discussed the relevance of networking in the entrepreneurial process, conducted a detailed review of the literature on the subject, and proposed a research agenda. Some challenges include the necessity to improve the “understanding of how networks form” and how group membership and competitive exclusion processes shape access to network-based resources.

Over the years, the importance of partnerships has been defined as a key aspect of the survival of new ventures (Gartner et al., 1999; Löfsten, 2016), a vital element for the startup success (Blank & Dorf, 2012), a critical element in a business model of start-ups (Osterwalder & Pigneur, 2013), a factor for the survival of external shocks (Raz & Gloor, 2007), and positively related to progress in the process of creating new ventures (De Carolis et al., 2009). Furthermore, in a study on the new venture creation process, from a list of nine subprocesses, networking and social capital was the second most frequently studied subprocess in the last 30 years (Davidsson & Gruenhagen, 2020). Even though Shepherd et al. (2021) acknowledge that an increasing amount of research is being conducted on organisational networks and how they might benefit organizations, he expresses that “we are only starting to gain an understanding of how networks are formed” (Shepherd et al., 2021, p. 21).

3.1.4 Market Segment Selection (11 studies)

According to this study, the decision domain Market Segment Selection has the third place of relevance. A selection of the type of market to serve, analysis of the competition, and decisions related to the definition of the market is covered by this category. As early as 1986, Roure and Maidique connected the market selection decisions as a factor for the success of new ventures. Additionally, the definition of market scope has been extensively studied and defined by several researchers as a fundamental decision (Wesson & De Figueiredo, 2001) and, frequently, a success factor (Duchesneau & Gartner, 1990; Song et al., 2008). This decision domain has also been recognised as a survival aspect for new companies. The study on new venture survival by Gartner et al. (1999) mentions that ventures with a focus on analyzing new entrants and operating in the high-growth sectors are more likely to survive.

Moreover, Romanelli (1989) found that market conditions at the time of founding and early organisational strategies jointly affect the survival likelihoods of young firms. A high relevance of choosing what market segment to enter at the beginning of the venture creation process has been cited in studies on successful startups and the impact of initial founding conditions and decisions on the performance of new ventures (Bamford et al., 2000; Leary & DeVaughn, 2009). Finally, it cannot go unmentioned that the block "market segments" is an essential part of the business modelling proposed by Osterwalder and Pigneur (2013) and a central element in the customer-centred approach of Blank and Dorf (2012). As Al-Debei and Avison (2010) state: the value proposition and the market segment are intrinsically connected, being a fundamental dimension to be considered in the structure of the business models.

3.1.5 Funding decisions (9 studies)

Funding decisions emerged as the next critical decision domain (4^th place) for early-stage start-ups. This category includes all decisions related to raising financial capital to initiate or develop the start-up's activities. Several studies have explored the relevance of early-stage investors, such as business angels and venture capitalists, in the critical phase of start-up funding (Sapienza et al., 1996; Fenn et al.,1998; Baeyens and Manigart, 2003; Cassar, 2004; Audretsch and Keilbach, 2005; Audretsch and Thurik, 2004 as cited in Schwienbacher, 2007). In the oldest article in this SLR, the authors analysed the most relevant issues facing start-ups in their early stages. It was found that obtaining external funding was one of the most dominant problems (Terpstra & Olson, 1993). During the same decade, studies linked start-up capital availability directly and indirectly (Cooper & Gimeno-Gascon, 1994; Sapienza & Grimm, 1997) to performance.

Additionally, studies mentioned that “having business with ‘fundable’ resource requirements” is characteristic of surviving new ventures (Gartner et al., 1999). During this period, it was also found that the start-ups with lower capitalisation levels had significantly higher failure rates (Bruderl et al., 1992, as cited in Bamford et al., 2000). Furthermore, the ability of the founders to attract start-up capital seems to set the direction of the new venture and its ability to grow (Cooper et al., 1992; Cooper et al. 1994 as cited in Bamford et al., 2000). Researchers have also studied how early-stage financing decisions may affect how entrepreneurial firms will “ultimately grow” (Schwienbacher, 2013, p. 528) and how funding decisions affect (reduce) the failure of start-ups (Delmar & Shane, 2004). Some have outright designated it as a key decision for start-ups (Varaiya, 2017).

3.1.6 Type of Organisation & Culture (7 studies)

The Type of Organisation and Culture was also found to be part of the decision domains relevant at the early stage. Determining the dynamics, structure, and organisation of the startup team falls under this decision domain. As mentioned in Alvarez and Barney (2005, p. 2), two of the most relevant decisions are; first, define who in the company has “the right to make what kinds of decisions” (Grossman & Hart, 1986; Hart & Moore, 1988) and second, determine the rights of various parties to the remaining cash flows generated by the exploitation of an opportunity (Coff, 1999). It also involves roles and responsibility definitions. Additionally, similar to the previous domain, this domain was frequently cited as a dominant problem for start-ups (Terpstra & Olson, 1993), which was oriented explicitly towards general management issues. In a subsequent study, building competencies in new ventures was given critical importance, especially because it helps to build resilience to market conditions (Mullins, 1996).

Taking an interest in the subject later, De Fraja (1996) examined the form of organization of new ventures, comparing entrepreneurial firms (run by the founder) and managerial firms (run by a manager). Talaulicar et al. (2005) found a significant influence of management team characteristics, processes, discussion style, and trust on start-ups' strategic decision-making. Alvarez and Barney (2005, p. 15) discussed, in their study on the organisation of firms under the condition of uncertainty, how the types of entrepreneurial firms are “essential to the process of changing uncertainty into risk and thus essential to the process of discovering the most efficient way to manage a particular set of economic exchanges”. Moreover, the type of leadership in new ventures has been related to a significant predictor of performance (Ensley et al. 2006). Finally, in their recent study, Contigiani and Young-Hyman (2021) found that “more structured ventures have greater commercial success” (Lee, 2021, as cited in Contigiani & Young-Hyman, 2021, p. 28).

3.1.7 Type of Channels & Relationships (6 studies)

This category was the next decision domain found to be critical in this study. The decision domain includes decisions related to how customers are reached, including the channels defined for this purpose and the relationships established for interaction. Based on the results, the early-stage impact of these decisions has not been extensively studied. In fact, it was not until 2011 that a study provided empirical evidence of the performance implications of distribution channel decisions (Brettel et al., 2011). Prior to this, some studies considered these decisions as part of the dominant problems in start-ups (Terpstra & Olson, 1993) and a factor of success for new technology ventures (Song et al., 2008). Despite the little-studied nature of this domain, Blank and Dorf (2012) and Osterwalder and Pigneur (2013) consider it an essential part of the business model and assign great importance to it as the building blocks that connect the value proposition to the customers.

Furthermore, findings indicate that the choice of distribution channel based on asset specificity has the greatest positive impact on performance, highlighting the crucial role played by this factor in the success of new technology ventures. (Brettel et al., 2011). Finally, studies also mention it among the key decisions in successful start-ups (van Cann et al., 2013).

3.1.8 Financial Decisions & Legal Decisions

The two last domains found to be essential to consider at the early stage of start-ups were the Financial Decisions (3 studies) and Legal Decisions (2 studies). The first one includes decisions on maintaining a healthy cash flow in the start-up and having financial liquidity. In this scope, Terpstra and Olson (1993) pointed out that internal financial management was one of the dominant start-up problems. A strong emphasis was also given to value finance (Al-Debei & Avison, 2010) in business models (Osterwalder & Pigneur, 2013) and business development (Blank & Dorf, 2012), where revenue streams and cost structure are two essential elements of being considered. On the other hand, the Legal Decisions domain includes the decisions related to legal issues, such as formalisation, contracts, the start-up's legal structure, patents, and intellectual property. This domain was addressed by Delmar and Shane (2004), who concluded that the activities that generate legitimacy reduce the hazard of venture disbanding. Finally, Blank and Dorf (2012) consider intellectual property to be a key resource for start-ups.

3.2 Critical decision domains over the years

An overview of the critical decision domains over time is presented in Fig. 5. It showcases the amount of research attention each of the nine identified critical decision domains has received over the past 36 years.

Table 5 Selected articles, their contributions, and derived critical decisions (PS = Primary search, BS = Backward search, FS = Forward search)

Reference	Search	Title	Type of study	Critical Decision domains
Alvarez & Barney (2005)	BS	How do entrepreneurs organize firms under conditions of uncertainty?	Theoretical Study	•;Type of Organisation & Culture
Astebro & Serrano (2015)	PS	Business Partners: Complementary Assets, Financing, and Invention Commercialization	Empirical Study	•;Core People
Bamford et al. (2000)	PS	An examination of the impact of initial founding conditions and decisions upon the performance of new bank start-ups	Longitudinal Study	•;Market segment selection •Funding
Blank & Dorf (2012)	BS	The startup owner's manual: The step-by-step guide for building a great company	Book	•;Product Definition •Core People •Partnerships •Market segment selection Funding •;Type of channels & relationships •Legal decisions •Financial decisions
Brettel et al. (2011)	PS	Distribution channel choice of new entrepreneurial ventures	Empirical Study	•;Type of channels & relationships
Brush et al. (2002)	BS	From initial idea to unique advantage: The entrepreneurial challenge of constructing a resource base	Case Studies	•;Partnerships
Burton et al. (2002)	BS	Coming from good stock: Career histories and new venture formation	Longitudinal study	•;Core People
Chen et al. (2021)	PS	Experience base, strategy-by-doing and new product performance	Empirical Study	•;Product Definition

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Table 5 Selected articles, their contributions, and derived critical decisions (Continued from page 14)

Reference	Search	Title	Type of study	Critical Decision domains
Contigiani & Young-Hyman (2021)	PS	Experimentation, planning, and structure in early-stage ventures: Evidence from pitch decks	Questionnaire	•;➔ Type of Organisation & Culture
Cooper & Gimeno-Gascon (1994)	BS	Initial human and financial capital as predictors of new venture performance	Longitudinal Study	•;Funding •Core People
Davidsson & Gruenhagen (2020)	FS	Fulfilling the Process Promise: A Review and Agenda for New Venture Creation Process Research	Review	•;Partnership •Product Definition
De Fraja (1996)	PS	Entrepreneur or manager: Who runs the firm?	Theoretical Study	•;Type of Organisation & Culture
Delmar & Shane (2004)	BS	Legitimating first: Organizing activities and the survival of new ventures	Longitudinal Study	•;Legal decisions •Funding
Dencker et al. (2009)	FS	Pre-Entry Knowledge, Learning, and the Survival of New Firms	Questionnaire	•;Product Definition •Core People
Dubini & Aldrich (1991)	BS	Personal and extended networks are central to the entrepreneurial process.	Theoretical Study	•;Partnerships
Duchesneau & Gartner (1990)	BS	A profile of new venture success and failure in an emerging industry	Interviews	•;Product Definition •Market segment selection •Core People
Ensley et al. (2006)	BS	The importance of vertical and shared leadership within new venture top management teams: Implications for the performance of startups	Questionnaire	•;Type of Organisation & Culture

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Table 5 Selected articles, their contributions, and derived critical decisions (Continued from page 15)

Reference	Search	Title	Type of study	Critical Decision domains
Furr (2019)	BS	Product adaptation during new industry emergence: The role of start-up team preentry experience	Longitudinal Study	•;Core People
Gartner et al. (1999)	BS	Predicting new venture survival: An analysis of “anatomy of a start-up” cases from Inc. Magazine	Mixed Methods	•;Product Definition •Core People •Partnerships •Market segment selection •Funding
Glaveckaitė (2020)	FS	The development process of the right team in early-stage start-ups	Ground Theory	•;Core People
Grossman et al. (2012)	PS	Resource Search, Interpersonal Similarity, and Network Tie Valuation in Nascent Entrepreneurs' Emerging Networks	Mixed method	•;Partnerships
Isaksson et al. (2021)	FS	The influence of initial business models on early business performance: a study of 589 new high-tech firms	Questionnaire	•;Product Definition
Leary & DeVaughn (2009)	FS	Entrepreneurial team characteristics that influence the successful launch of a new venture	Empirical Study	•;Market segment selection
Löfsten (2016)	FS	New technology-based firms and their survival: The importance of business networks, and entrepreneurial business behaviour and competition	Longitudinal Study	•;Partnership •Core People
Marion et al. (2012)	PS	New product development practices and early-stage firms: Two in-depth case studies	Case Study	•;Product Definition
McCann (1991)	PS	Patterns of growth, competitive technology, and financial strategies in young ventures	Longitudinal Questionnaire	•;Partnerships •Product Definition

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Table 5 Selected articles, their contributions, and derived critical decisions (Continued from page 16)

Reference	Search	Title	Type of study	•;Critical Decision domains
Mullins (1996)	PS	Early growth decisions of entrepreneurs: The influence of competency and prior performance under changing market conditions	Experimental Study	•;Type of Organisation & Culture
Osterwalder & Pigneur (2013)	BS	Business model generation: A handbook for visionaries, game changers, and challengers	Book	•;Product Definition •Partnerships •Type of channels & relationships •Market segment selection •Financial decisions
Raz & Gloor (2007)	BS	Size really matters: New insights for start-ups’ survival	Longitudinal Study	•;Partnerships
Reymen et al. (2015)	FS	Understanding dynamics of strategic decision making in venture creation: A process study of effectuation and causation	Multiple case study	•;Core People
Robinson & Pearce (1986)	PS	Product life-cycle considerations and the nature of strategic activities in entrepreneurial firms	Questionnaire	•;Product Definition
Romanelli (1989)	BS	Environments and strategies of organization start-up effects on early survival	Questionnaire	•;Market segment selection
Roure & Maidique (1986)	BS	Linking prefunding factors and high-technology venture success: An exploratory study	Exploratory Study	•;Market segment selection •Core People
Sapienza & Grimm (1997)	BS	Founder characteristics, start-up process, and strategy/structure variables as predictors of shortline railroad performance	Questionnaire	•;Core People •Funding •Market segment selection •Product Definition

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Table 5 Selected articles, their contributions, and derived critical decisions (Continued from page 17)

Reference	Search	Title	Type of study	Critical Decision domains
Schwienbacher (2007)	PS	A theoretical analysis of optimal financing strategies for different types of capital-constrained entrepreneurs	Theoretical study	•;Funding
Schwienbacher (2013)	PS	The entrepreneur's investor choice: The impact on later-stage firm development	Theoretical study	•;Funding
Shepherd et al. (2019)	FS	What Are We Explaining? A Review and Agenda on Initiating, Engaging, Performing and Contextualizing Entrepreneurship	Review	•;Product Definition
Shepherd et al. (2021)	FS	Creating New Ventures: A Review and Research Agenda	Review	•;Partnerships •Core People
Song et al., (2008)	BS	Success factors in new ventures: A meta-analysis	Meta-analysis	•;Type of channels & relationships •Core People •Market segment selection
Stuart & Sorenson (2007)	BS	Strategic networks and entrepreneurial ventures	Literature Review	•;Partnerships
Talaulicar et al. (2005)	PS	Strategic decision making in start-ups: The effect of top management team organization and processes on speed and comprehensiveness	Empirical Study	•;Type of Organisation & Culture
Terpstra & Olson (1993)	BS	Entrepreneurial start-up and growth: A classification of problems	Questionnaire	•;Type of channels & relationships •Funding •Financial decisions •Type of Organisation & Culture

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Table 5 Selected articles, their contributions, and derived critical decisions (Continued from page 18)

Reference	Search	Title	Type of study	Critical Decision domains
Tornikoski & Renko (2014)	FS	Timely Creation of new Organizations: The Imprinting Effects of Entrepreneurs' Initial Founding Decisions	Questionnaire	•;Product Definition
van Cann et al. (2013)	FS	Software business start-up memories: Key decisions in success stories	Interviews	•;Product Definition •Type of channels & relationships
Varaiya (2017)	PS	Michel Kripalani and Oceanhouse Media: Journey of a Serial Entrepreneur	Case study	•;Funding
Wesson & De Figueiredo (2001)	PS	The importance of focus to market entrants: A study of microbrewery performance	Case Study	•;Market segment selection

* PS = Primary search, BS = Backward search, FS = Forward search

This study provides a clear integration of the findings from the literature about the critical decisions for start-ups in the early stages of the past decades. Tornikoski and Renko (2014) emphasise that “initial founding decisions have significant consequences for the subsequent development of new ventures.” However, in the existing literature, there is limited knowledge about the critical initial foundation decisions that must be taken (e.g., Bamford et al., 2000; Aspelund et al., 2005; Leary and DeVaughn (2009). These scholars encourage research on this topic to support aspiring and practising entrepreneurs in their early decision-making stages. This SLR seeks to support closing the knowledge gap in the critical areas where entrepreneurs must make these initial foundation decisions.

The first results of the SLR were the creation of categories representing the decision areas of the entrepreneurs. These categories were developed deductively by analysing models used in new venture creation and inductively by analysing the data collected in the search (see section 3). The relative frequencies in Fig. 3 indicate that Product Definition and Core People are the most critical decisions for early-stage start-ups, closely followed by Partnerships and Market segment selection. These four critical decision domains account for more than 70 per cent of all early-stage critical decisions. Funding and Type of Organisation & Culture are also critical decision domains but are of less importance. According to the SLR, Type of channels & relationships, Financial decisions, and Legal decisions are the least relevant of all researched key decisions. It is to be noted that the scholarly interest in decision domains varies significantly over time, as typified in Fig. 4. The most critical decision domains are also the domains of decisions that have gotten more attention from researchers lately.

The most frequent decision domains in the SLR were Product Definition and Core People. This result brings the relevance of the development of the business and human cores to the forefront. It resonates, first, with what is currently used in the generation of business models (Osterwalder & Pigneur, 2013), in which the value proposition is represented as the heart of the model. The literature emphasises Product Definition as being a critical decision for early-stage start-ups because it attributes to positive effects like organisational will (Duchesneau & Gartner, 1990), high-performance factor (McCann, 1991; Sapienza & Grimm, 1997), and avoidance of company failure (Marion et al., 2012). In the same line, Core People selection was found to be as important as the business core; the development of the human core becomes a crucial part of the decisions for early-stage entrepreneurs. The literature considers this domain as a survival (Cooper & Gimeno-Gascon, 1994; Dencker et al., 2009; Löfsten (2016) and success factor (Song et al., 2008) for start-ups. This result does not align with mainstream business modelling, where key people are not considered an essential part of the business (except, in part, in the implicit inclusion in the key resource block of the Business Model Canvas). The management (“who”), entire strategy (“how”), and the values (“why”) that will guide the business are implemented by the people who work in the company; however, it is not integrated into most of the traditional business modelling methods. This finding also aligns with research that focuses on the positive effects of a values-based mission and vision driven by the core people in start-ups (Heblich, 2021) and corporations (Mackey & Sisodia, 2014).

The third category relevant to the business creation stage was Partnerships decisions. Some of the attributes of this decision domain as a central element for the entrepreneurial process (Aldrich & Zimmer, 1986; Granovetter 1985 as cited in Dubini & Aldrich, 1991), a critical aspect for the survival of new ventures (Löfsten, 2016), a factor to survive external shocks (Raz & Gloor, 2007) and positively related to progress in the process of creating new ventures (De Carolis et al., 2009). This finding matches the relevance given by the business modelling practices (Osterwalder & Pigneur, 2013), which identifies it as a key partner block in their model. Partners will support the functions or activities that people in the organisation cannot fulfil. Therefore, it makes sense that the decisions made in these domains are critical at an early stage. Also, partnerships are considered a central element in the valued-based model for corporations presented by Mackey and Sisodia (2014).

The Market segment selection also emerged to be among the highlights category of this study. This decision domain was featured as a success factor (Roure & Maidique, 1986; Duchesneau & Gartner, 1990; Song et al., 2008) and a survival aspect for new ventures (Romanelli, 1989; Gartner et al., 1998). Market segmentation is a domain also emphasised by Osterwalder and Pigneur (2013), in which the customer segments block is assigned to represent the market to be served. According to the principles of business modelling and user-centred design (e.g., design thinking), the ideation and value creation processes must be customer-centred, so there is a consonance with the results of this study.

The other five domains defined as critical for early-stage start-up founders through this literature search were Funding, Type of organisation & culture, Type of channels & relationships, Financial decisions, and Legal decisions. It is not that these decision areas are not relevant; however, we believe they are less studied because they are more concerned with the "how" of achieving the vision. Despite the literature emphasising the importance of these decisions as well, little has been done to integrate them into tools that assist entrepreneurs in making decisions.

From our perspective, the discussed results indicate that it is crucial for business founders in the early stage to focus on, what we call, the internal human and business core of a start-up. The internal human core is the co-founders that work together in the start-up (represented through Core People). The internal business core is the object the entrepreneurs are working on, a product or service (represented through product definition). Based on the SLR, the human core could be extended from the internal founding team to the external partnerships (represented through Partnerships; number 3 in the SLR). Moreover, the business core could be extended from the internal product definition to the external perspective of key customers, as we see the product definition inextricably linked to the customers (represented through market segmentation, number four in SLR).

Based on these implications, we encourage aspiring and practising entrepreneurs as well as educators in the field of entrepreneurship to focus on the question of who/why (core people and partnerships), what (product definition), and for whom (market segmentation), before elaborating the different how’s (Funding, Type of Organisation & Culture, Type of channels & relationships, Financial decisions, and Legal decisions). Future studies could present methods to help aspiring and practising entrepreneurs make decisions related to these questions.

Besides the insightful results of the SLR, we want to emphasise the limitations of our study. The SLR was executed following the schemas of vom Brocke et al. (2009), Tahir et al. (2016), and Kitchenham et al. (2009). Therefore, the search was planned using an automatic and manual search process in journals and databases. For that reason, some crucial studies may be excluded because of the omission of possibly relevant journals or articles. Regarding the selection of journals ranked A and A+ for the initial search, it can be argued that many studies from other journals are being excluded; however, the effects of this limitation are countered by the relaxation of these criteria in the forward and backward search. Finally, we encourage researchers to integrate our results in theory-building and practical applications in the context of entrepreneurship.

BS Backward Search

CEO Chief Executive Office

FS Forward Search

MECE Mutually Exclusive Collectively Exhaustive

PS Primary Search

ROA Return on Assets

SLR Systematic Literature Review

Availability of data and material

The results of the search, analysis and paper analysis are available upon request from any editor.

Competing interests

No applicable

Funding

The work of the author Marcos A. González M. was funded by the National Agency for Research and Development (ANID) / Scholarship Program / DOCTORADO BECAS CHILE/2017 - 72180620.

Authors’ contributions

No applicable

Acknowledgements

No applicable

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Critical Decisions at the Early Stage of Start-ups: A Systematic Literature Review

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1. Introduction

2. Methodology

3. Results

3.1. Critical Decision Domains

3.1.1 Product Definition (15 studies)

3.1.2 Core People (15 studies)

4. Discussion

5. Conclusion

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