Does business planning facilitate the development of new ventures?

Many prior researchers have criticized business planning, arguing that it interferes with the efforts of firm founders to undertake more valuable actions to develop their fledgling enterprises. In this paper, we challenge this negative view of business planning, arguing that business planning is an important precursor to action in new ventures. By helping firm founders to make decisions, to balance resource supply and demand, and to turn abstract goals into concrete operational steps, business planning reduces the likelihood of venture disbanding and accelerates product development and venture organizing activity. Empirically, we examine 223 new ventures initiated in the first 9 months of 1998 by a random sample of Swedish firm founders and provide support for our hypotheses. Copyright © 2003 John Wiley & Sons, Ltd.     

Market Information Acquisition,Use, and New Venture Performance*

A substantial body of existing research has linked firm performance to the acquisition and use of customer, competitor, and other market information. This paper examines the impact on new venture performance of formal processes for market information collection and use. This study hypothesizes that new venture performance will be an increasing function of both market information and use. Two moderator hypotheses are also tested. In particular, it is expected that the impact of formal market information processes will be greater in market‐driven new ventures than in technology‐driven new ventures. These hypotheses were tested using data collected from 222 Chinese new ventures. The empirical analysis confirms the positive role of formal processes in new venture performance. However, the analysis does not support the moderator hypotheses. This study finds that (1) formal processes for information acquisition are equally important in technology‐driven and market‐driven firms and (2) formal processes for information use have a greater impact on new venture performance in technology‐driven firms than in market‐driven firms.     

Stimulating high–tech venture creation

This paper explores whether policy makers can successfully encourage high–tech venture creation. We outline some of the policy interventions that have been used to stimulate new venture creation. We then present case evidence of how a new high–tech industrial district emerged in Dublin, focussing on the role of various policy interventions. We conclude by arguing that a range of appropriately timed policy interventions can be pivotal in the development of internationally competitive high–tech new ventures. However the case suggests that it was a combination of sector level and direct firm level interventions that stimulated and facilitated the emergence of a cohort of high–tech new ventures.     

Perspective: Economic Conditions,Entrepreneurship, First‐Product Development,and New Venture Success*

Entrepreneurial ventures have a significant impact on new job creation and economic growth, but existing evidence indicates that most entrepreneurial ventures fail. This paper reports key insights from VENSURV, a new database that tracks the success and failure of ventures founded since 1998. Based on an analysis of 539 new ventures founded during the years 1991–2001, the following conclusions are reached. First, consistent with prior research, less than half of the 539 ventures survived more than two years. Second, economic downturns lead to higher failure rates for new ventures. Third, new venture success is highly correlated with first‐product success. Fourth, first‐product success is enhanced when those products are introduced into markets with emerging market needs but with established industry standards. Finally, first‐product and venture performance are significantly higher for products based on ideas that came from the founders. In addition, the most successful first products are based on ideas that reflect both technology development and an analysis of customer needs.     

Effects of alliances,time, and network cohesion on the initiation of foreign sales by new ventures

In this study, we seek to advance the network perspective on new venture internationalization by examining the role of networks in accelerating new venture sales into foreign markets. We propose that knowledge derived from ventures' technology and marketing alliances increases the likelihood that new ventures begin exploiting opportunities in international markets. We also argue that the extent to which the networks open the venture to new knowledge or constrain it to knowledge already shared among the partners will influence the initiation of foreign sales by a venture. Using a longitudinal dataset of 118 ventures in the U.S. biotechnology industry, we confirm that different types of alliances (and, therefore, different types of knowledge—technology and marketing knowledge) differentially impact the likelihood of new venture internationalization. Moreover, network cohesion among venture alliances increases the likelihood that marketing alliances will promote initial foreign market sales, but decreases the likelihood that technology alliances will do so. Our research is a timely response to a call for the study of interactive effects among network structure, complex tasks, and time, and it provides a possible explanation for certain unexpected findings in studies that did not consider the effects of time. Copyright © 2010 John Wiley & Sons, Ltd.     

‘Trojan horse’ or ‘Workhorse’? the evolution of U.S.–Japanese joint ventures in the United States

Foreign investors and their domestic joint venture partners must find ways to share the benefits of the venture if both sides are to be satisfied. Some work in the literature on joint ventures has asserted that there is a danger in all joint ventures, and especially joint ventures with Japanese, that one side will exploit the venture for its own gain, using it as a Trojan Horse. To test this assertion, we build a full data set of Japanese firms with joint ventures in the United States and track the ventures over time. Our data show that the Japanese partners do not take actions consistent with the Trojan Horse hypothesis. Copyright © 1999 John Wiley & Sons, Ltd.     

Exploration and Resource Commitments in Unequal Partnerships: An Examination of Corporate Venture Capital Investments

While established firms' relationships with external ventures may have significant strategic benefits, the realization of such benefits is fraught with considerable uncertainty. The real options and interorganizational learning literatures present an interesting trade‐off for established firms regarding commitment of resources in a partnership. This study seeks to enhance our understanding of how firms manage these trade‐offs when committing resources to external venturing initiatives. We examine the magnitude of resources initially committed by an established firm to an external venturing partnership in the context of corporate venture capital (CVC) investments. While a real options approach suggests that resource commitments should be lowered in the presence of uncertainty regarding realization of benefits, the interorganizational literature emphasizes that resource commitments may be essential for building quality relationships that expedite learning. Corporate investors, who invest in new ventures in order to gain strategic benefits, face higher uncertainty when their investment objectives involve greater exploration. However, greater exploration also increases investors' need to learn from their portfolio ventures. We, therefore, predicted that the degree of exploration would have a U‐shaped relationship with the investor's resource commitment in a venture. We also expected that factors that serve to decrease the investor's uncertainty, i.e., investor experience diversity and venture affiliation to prominent venture capitalists, would moderate the U‐shaped relationship between exploration and resource commitment. The predictions of the study are tested on a sample of 248 initial investments in private ventures made by incumbent firms in the computer, semiconductor, and telecommunications industries between 1996 and 2000. We find some support for our hypotheses. This study contributes to the external venturing literature on CVC investments by examining the determinants of the magnitude of resource commitment to new ventures, and integrates real options perspective, which advocates low resource commitments under uncertainty, with the organizational learning literature, which argues for greater resource commitment to secure partner cooperation. The results of this study reveal interesting insights into how CVC investors manage individual investments to generate strategic benefits.     

The adoption of agency business activity,product innovation,and performance in Chinese technology ventures

This study examines the roles of firm characteristics and environmental factors in the formation of interfirm alliances. Specifically, we examine the dual role of these groups of factors as inducements and opportunities for Chinese high‐technology new ventures (HTNVs) in their adoption of agency business activity, a downstream type of alliance involving marketing and distribution of the products of foreign firms. Results suggest that both internal and external factors are related to the adoption of agency business activity but the inducement and opportunity value of environmental uncertainty may be dampened by institutional support provided to HTNVs. Further, we find that successful agency business activity is positively related to new venture performance but negatively related to its product innovation efforts. Theoretical and managerial implications are discussed. Copyright © 2002 John Wiley & Sons, Ltd.     

The role of incubators in overcoming technology ventures’ resource gaps at different development stages

Although incubation is considered important for overcoming resource challenges in technology ventures’ early life, there is a doubt about its relevance in later development stages, when the initial idea is commercialized and the venture tries to grow. Building on the resource‐based view of the firm and on a stage‐based perspective of venture development, this study argues that the resource gaps facing technology ventures differ between different development stages, and that the support provided by incubators therefore needs to be adapted to the venture’s development stage. We study the interaction between the iMinds incubator, located in Flanders, and eight technology ventures in its portfolio. In the Conception and Development stage, we observe resource gaps in terms of technical knowledge and access to end users, which the incubator addresses by offering direct technical support and access to its research and end user network. The subsequent Commercialization stage is dominated by business knowledge gaps, which the incubator amends through direct coaching and trainings. In the Growth stage, ventures typically lack the necessary team members, market players, and follow‐up financiers to grow their firm. The incubator addresses these resource gaps by providing access to its network. In all development stages, the incubator’s internal knowledge base, networking capabilities, and matching focus/selectivity are crucial in order for ventures to benefit from the incubator’s support. Our study suggests that these underlying capabilities can either be developed organically, or through the merger of different research institutes. Moreover, it points to the importance of local embeddedness for the geographical extension of these capabilities. These findings contribute to the literature on incubation and on venture development. They have important implications for policy makers, incubation managers, and entrepreneurs seeking incubation support.     

Legitimacy and the Value of Early Customers

To overcome resource constraints and achieve exponential growth, a new venture must rely on early customers of its products to communicate value and commitment to others. For this reason, founders of new ventures focus more on early customers as a key element of their founding strategy than on other elements. But when do early customers really add value to new ventures? Scholars have used legitimacy theory to examine the benefits of gaining acceptance and conveying firm quality through conforming to social norms and following similar methods and forms. It has been argued that, independent of the customers of products and services, observable legitimacy characteristics of a new organization function as signals and are used by critical external constituents to infer the quality of the firm. This research, however, sheds little light on the manner in which firm legitimacy influences how potential customers respond to the existence of early customers. The current study therefore proposes that, depending on types of legitimacy (cognitive, regulative, and normative), early customers may have a different impact on subsequent firm performance. While a young firm may reduce information asymmetry that hampers their attractiveness to customers and other external stakeholders via the costly signal of obtaining early customers, the signal fit argument suggests that discrepancy between a signal and the characteristics of the signaler can lead to unreliable quality and lower signaling value. Legitimacy is critical because, when legitimacy is absent, early customers may not serve as an effective signal for the new venture. This study therefore explores the extent to which the signaling effect of early customers depends on these three types of legitimacy. This study employs the Kauffman Firm Survey (KFS) public database, a panel study of 4928 new businesses founded in the United States in 2004. Four surveys (baseline, first follow‐up, second follow‐up, and third follow‐up) were conducted using self‐administered Web survey and computer‐assisted telephone interview methods. In this study, the independent variables include early customers and the three types of legitimacy (cognitive, regulative, and normative) as well as a set of control variables. All independent variables were measured at the founding of the businesses in the KFS baseline survey. Dependent variables in this study include second‐year revenue, third‐year revenue, and fourth‐year revenue as measured in the KFS first, second, and third follow‐up surveys, respectively. The multinomial logistic regression and Heckman sample selection model is used to analyze the data. Results show that early customers are beneficial to new ventures, and the benefits of early customers to firm performance are higher when there is cognitive legitimacy from a capable founding team and regulative legitimacy from paying federal Social Security and Medicare taxes. Surprisingly, while incorporation improves performance for new ventures, the benefit of having early customers relative to not having early customers is lower, not higher, when the firm is incorporated than when the firm is not incorporated. Early customers have the same benefit regardless of the presence of normative legitimacy through the presence of a network with suppliers. This study therefore offers insights into the role of early customers at founding. Early customers can be very useful for founders with significant experience, and it may be a good strategy to seek them out. However, it appears that there are specific conditions under which pursuing early customers may not be an effective strategy. Founders can make strategic decisions not to pursue early customers if there are no anticipated payoffs.     

The value from acquiring and divesting a joint venture: a real options approach

This study examines the value created from acquiring and divesting a joint venture. Unlike previous research which focuses on parent firm factors, the study examines value in light of the reason behind the termination of the venture and the characteristics of the target market. Consistent with the real options view, the paper finds that ventures divested to refocus a parent firm's product market portfolio were associated with significant value creation. In contrast, ventures acquired with the objective of growth and expansion in a target market, while not associated with significant value creation, did not destroy value either. Apart from these results, the paper also finds that acquirers and divesters gained lesser value when they terminated ventures in uncertain and concentrated industries. These latter findings highlight an important caveat with regard to termination: joint ventures confer valuable flexibility which is also forgone once they are terminated. Implications are discussed. Copyright © 2005 John Wiley & Sons, Ltd.     

New venture strategic adaptation: The interplay of belief structures and industry context

We adopt an information processing perspective to investigate how the interplay of belief structures and industry context shapes new venture strategic adaptation in a sample of 104 publicly traded new ventures founded between 1996 and 2006 in several technology‐intensive industries. Results highlight that distinct espoused belief structures attributes (complexity, centrality, proactive causal logics) and industry growth combinations predict diversity, frequency, and speed of new venture strategic actions. We contribute to prior literature on early firm strategic adaptation by providing an elaborated understanding of the role of espoused belief structures in interpreting and translating industry signals into new venture strategic action. Further, we highlight the role of belief structures in facilitating the fast, diverse, and frequent organizational actions typically associated with continuous adaptation. Copyright © 2014 John Wiley & Sons, Ltd.     

Cultural distance,investment flow,and control in cross‐border cooperation

Previous research analyzing the impact of cultural distance on joint venture negotiations has often confounded firm and environment effects. To decouple these effects, the cross‐border cooperation preferences of small and medium‐sized Korean firms were studied, considering simultaneously firms involved in inward and outward investment ventures. While cultural distance showed no significant relationship with the degree of control sought over the cooperative ventures, cultural distance was significantly related with a preference for ventures in domestic or foreign markets. The impact of cultural distance was found to be greater in inward investment than in outward investment. Copyright © 2008 John Wiley & Sons, Ltd.     

When does corporate venture capital add value for new ventures?

New ventures face a trade‐off when considering corporate venture capital (CVC) funding. Corporate investors can provide complementary assets that enhance the commercialization of new venture technologies. However, tight links with a particular corporate investor has drawbacks and may constrain new ventures from accessing complementary assets from diverse sources in an open market. Taking this trade‐off into account, we explore conditions under which CVC funding is beneficial to new ventures. Using a sample of computer, semiconductor, and wireless ventures, we find that CVC funding is particularly beneficial for new ventures when they require specialized complementary assets or operate in uncertain environments. Copyright © 2011 John Wiley & Sons, Ltd.     

Formal integration archetypes in ambidextrous organizations

Research suggests that organizational ambidexterity, an organization's capacity to pursue both exploratory and exploitative activities, is critical to firm innovation and performance. Extant research primarily emphasizes several firm‐level informal integration mechanisms, such as creating a common vision and relying on social integration, for integrating structurally ambidextrous units. Research has largely ignored, however, the formal mechanisms by which organizations have integrated such units. In this inductive study, using archival and interview data from organizations in Silicon Valley, we address this gap by identifying the formal integration archetypes that enable core business units to collaborate with new venture units to incubate new businesses. The four integration archetypes that enable collaboration vary along two key dimensions: who initiates new ventures and when collaboration is solicited. We identify formal administrative and resource mechanisms that enable such collaboration. We combine the disparate literatures of temporal and spatial separation of ambidextrous structures, and demonstrate how these must be combined at the business unit and new venture levels of analysis to achieve integration. The practical contribution of this study lies in identifying suitable contexts in which each of these archetypes can be utilized by practitioners for reintegrating new venture projects developed in separate structures.     

Institutional adversity,external knowledge sources,and new ventures' innovation: An institutional polycentrism theory perspective

Why do some new ventures thrive while others fail? In this study, we investigate the unique relationship between external knowledge sourcing of new ventures and its innovative outcomes, and its contextual embeddedness. The investigation is based on the Knowledge-based view and theory of institutional polycentrism across entrepreneurs, nested in different institutional contexts. Our framework generates hypothesis about the negative impact of higher levels of institutional adversity, on new venture's innovation at the national level. We then found the contingent role of adversity in institutions based on the relationship between external knowledge sourcing and new venture innovation. We examine this question using data from 28,660 entrepreneurs from 47 countries. We use Global Entrepreneurship Monitor, Freedom House, IEF, POLCON and Political Risk Services data for 2009–2013. We apply multilevel estimation framework to test our hypotheses. We find the new ventures that have high level of external knowledge sourcing tend to be more innovative: the ones that search widely through different external sources. Further, we find that the benefits to external knowledge sourcing depend on institutional environmental conditions, however new venture innovation should ensure the external knowledge sourcing are used robustly to develop a resource mechanism to deal with the institutional adversity.     

Exploring Correlates of Product Launch in Collaborative Ventures: An Empirical Investigation of Pharmaceutical Alliances

This paper examines collaborative ventures leading toward the launch of new products in the pharmaceutical industry. These collaborative ventures are one of the most underresearched areas in the new product literature, yet the preponderance of these collaborative ventures makes it an area of great importance for scholars and practitioners alike. As such, the purpose of the study is to examine why some collaborative projects produce a favorable outcome (the launch of a product) whereas others do not. That is, what characteristics of partner firms in the collaborative ventures and what characteristics of the partnership lead to a successful launch of a new product in the pharmaceutical industry? Secondary data from the pharmaceutical industry are employed in a multinomial logit model. Data from 128 collaborative ventures from 1980 to 2004 are used in the analysis. The partner firms in the collaborative ventures are from various industries ranging from malt beverages to pharmaceutical preparations to electronic and other equipment among others. Of the 128 collaborative ventures, 66 were successful in leading to a new product launch, whereas 62 did not result in the launch of a new product. The results from the multinomial logit analysis suggest that combined marketing resources of parent companies, combined technological intensity of parent companies, and combined asset bases of parent companies contribute to the likelihood of an eventual product launch in a collaborative venture. However, the results of the analysis show that contrary to expectations, technological complementarity of partners in the collaborative venture is not a significant predictor of successful new product launch. The results of the study suggest certain aspects for managers to consider when establishing collaborative ventures. To maximize the possibilities of the collaborative venture leading to the successful launching of a new product, managers should be concerned with the resources potentially available to partners in the collaborative venture from parent firms. These resources are not only of financial nature but also of technological nature. The existence of these resources does not ensure provision of resources to the collaborative venture; however, without the possibility of these resources it appears that successful launch of a product is less likely.     

Status in a strange land? Context‐dependent value of status in cross‐border venture capital

Research Summary: While recent literature has depicted status as an intangible asset that is firm‐specific and mobile, we have a limited understanding of whether status confers advantage in a way similar to other intangible assets. This study examines the macro‐structural contingencies that influence the marginal value of firm status as firms expand to new markets. Building on the literatures on status and social approval assets, as well as globalization and international management, we hypothesize that two conditions influence how valuable home‐country status will be in a given host country: the interconnectedness of the home and host countries, and their relative position in the global network. We test our hypotheses in a study of 187 venture capital (VC)‐backed biotechnology ventures in 19 countries between 1990 and 2006. Managerial Summary: Startups typically prefer high‐status VC investors for endorsements, network connections, and resources. One might expect the benefits of high‐status VCs to be even higher when they invest across borders. Yet, we show that status is ingrained in context, and that the performance advantage of partnering with high‐status cross‐border VC firms depends on the relationship between the country of the VC firm and that of the startup. We find that, when the VC industries in the two countries are more connected, the positive effect of cross‐border VC firm status on successful exit is amplified. However, when the VC firm comes from a more central country than the startup, the benefits of VC firm status are less pronounced and vice versa.     

Resource-performance relationships in industrial export ventures: The role of resource inimitability and substitutability

Drawing on resource-based theory and insights from qualitative fieldwork we examine resource drivers of export venture performance in industrial firms using primary data from German and UK industrial-goods manufacturers. Our results indicate that while the levels of individual export venture resources are not directly related to export venture performance in the firms in our sample, many of the resources are related to two important characteristics of resources — namely the inimitability and non-substitutability of the mix of resources available to the export venture. Furthermore, we find that that resource inimitability and non-substitutability are directly related to export venture performance. Taken together these results demonstrate the important role that inimitability and non-substitutability play in mediating the resource-to-performance relationship in the industrial goods export ventures in our sample. Our study provides some of the first direct evidence supporting a key premise of the resource-based view of the firm — that the competitive imitability of a firm's resources and the inability of rivals to use substitute resources to execute a similar strategy are important drivers of firm performance.     

Radical innovation through internal corporate venturing: Degussa's commercialization of nanomaterials

Internal corporate venturing enables radical innovation within established firms in mature markets. Without effectively designed and managed internal corporate ventures, the organizational constraints of established firms will strongly favour incremental innovation over radical innovation. This paper investigates the evolution of a successful internal corporate venture within a large, incumbent chemical firm, now known as Evonik Degussa, to reveal the challenges, organizational design, and management strategies of their commercialization of radical nanomaterials technology. The commercialization of nanomaterials technology is of great interest to incumbent materials and chemical firms and to independent ventures, but the radical, generic, and capital intensive nature of nanomaterials technology requires organizational and managerial innovation. This case study demonstrates a model to enable growth through radical innovation in nanomaterials, while taking advantage of an incumbent firm's capabilities and complementary assets. Organizational strategies include incubation from a risk-adverse culture, relatively long timelines for evaluation, and a high-level steering committee. Managerial strategies focus on product development, risk reduction, and active risk management.