Evolution of business start-ups in the South-Eastern Brazil: critical learning episodes as a theoretical and analytical tool

Economic theories, such as the theory of the firm and the evolutionary economics, hold on concepts that explain the acquisition and the transformation of resources by enterprises. These theories describe a process of identification of needs, search for inputs to fulfil them, and transformation of these inputs into services for survival and growth of firms and of industrial sectors, respectively. All of them highlight the importance of learning but they do not detail how learning processes come about. Additionally, there is little attention to small scale enterprises, characterised by the scarcity of initial resources. This paper focuses on business start-ups as dynamic entrepreneurial initiatives that aim to survive and grow in the market. To the explanation of the evolution of business start-ups, it introduces the concept of critical learning episodes. Critical learning episodes are turning points in the start-up history. They are composed by three main subplots: processes of development of meaning (creation of values and culture), processes of development of commitment (networks of the start-up with partners and other actors), and processes of development of method (ways of doing things). To examine these episodes, entrepreneurs were interviewed from 44 business start-ups in South-Eastern Brazil, all enrolled in a business development service designed to promote enterprise development and growth by providing operational and strategic services at lower costs. From these start-ups, 37 are documented in this paper for the most common critical learning episode, entry and permanence in the market (n=70). This type of episode is triggered by three main needs: 1) needing to enter a well-established market; 2) needing to create a new market niche for an innovative product; and 3) needing to outlive the threats to the permanence of the business in that market. Learning strategies applied by the entrepreneurs in response combined cognitive (mainly extrinsic reflection) and behavioural strategies (remarkably practical application and interpersonal/inter-organisational help seeking). These episodes led to the creation of the identity of the firm, to reconfigurations in its network, and to the development of new methods of functioning. A number of new routines were observed in all start-ups. These routines, for instance, included developing combinations of formal and informal business transactions, producing simpler and more marketable products, establishing partnerships for research and development, developing specialised services, broadening the scope of the target market, creating spin-offs, selecting buyers, speeding up the creation of new products, defining tasks among associates, and relying on trust-based relationships with buyers. Comparisons between the initial networks and their configuration by the time of the interviews indicated the embeddedness of these business start0ups in the institutional setting provided by support institutions. To systematise the narratives into plots, the concept of critical learning episodes was a fundamental analytical tool showing that the evolution of business start-ups can be theoretically described in terms of the creation of new meanings, new commitments, and new methods. It also enabled comparisons per sub-category of market and per learning strategy, as well as the description of the evolution of the start-ups networks.