Industry relatedness in trade sales and venture capital investment returns

We investigate relationships between the industry relatedness of venture capital-backed companies and their strategic acquirer in trade sales and the achieved investment returns of venture capitalists. Using a proprietary data set of 716 trade sales, we analyze return differences between lateral and synergetic trade sales, as well as between horizontal and vertical trade sales. We find that venture capitalists achieve higher returns with lateral rather than synergetic trade sales, and that the difference is greater for deals involving early stage companies characterized by strong information asymmetries. In addition, horizontal trade sales yield higher returns than vertical trade sales; however, in boom phases of the venture capital market, this effect reverses. Finally, we find that experienced venture capitalists are able to overcome disadvantageous situations in trade sales, resulting in comparable returns across all trade sale categories.     

New venture internationalization,strategic change,and performance: A follow-up study

Although many scholars, business experts, and government agencies enthusiastically advise all firms, including new and small ventures, to internationalize, such advice does not appear to be based on empirical evidence. Few researchers have empirically examined the link between new venture performance and the internationalization of new ventures. At best, the evidence suggests that there is no significant relationship.We used a sample of 62 U.S. new venture manufacturers in the computer and communications equipment industries during the late 1980s. These industries were purportedly globalizing and may have been leading other industries into increased international operations. We found that higher levels of internationalization (percentage of foreign sales to total venture sales) were associated with higher relative market share two years later. However, there was no significant direct relationship between percentage of international sales and subsequent return on investment (ROI). Perhaps international operations simply cost more than expected. Or perhaps, as MacMillan and Day (1987) found in their study of corporate ventures over a 4-year time period, increases in market share may be a prelude to higher ROI as scale benefits translate into higher profitability. However, the 2-year time period of our study may simply not be long enough for investments in higher market shares to produce improved profits.During the 2-year study period, many of the ventures changed their level of internationalization. Of the 36 ventures who were domestic (no international sales) in the prior study, 10 expanded into international markets over the 2 years. Of the 26 originally international ventures (international sales of at least 5%), half increased their percentage of international sales, nine reduced it, and four stayed the same. Whereas the average change in international sales percentage of the ventures was only 2.9 percentage points, the large standard deviation of 13.0 percentage points, and the leptokurtic distribution (9.2) reflected the dramatic changes made by some of the ventures. Using subgroup analysis we examined these changes in percentage of international sales in conjunction with changes in strategies and performance. Ventures that had increased international sales, relative to those that had not, exhibited more positive associations between the degree of strategic change and performance as measured in terms of both relative market share and ROI. Increased international sales in technology-based new ventures seems to require simultaneous strategic changes in order to positively impact venture performance.This study is a follow-up to McDougall's (1989) finding that technology-based new ventures that had sales in foreign markets had significantly different strategies than similar ventures that sold their products only domestically. The current study enriches the previous findings by adding consideration of (1) changes in degree of internationalization, (2) changes in strategy, and (3) venture performance.Although we found no performance penalty associated with increasing international sales alone, indiscriminant advice for new ventures to sell in foreign markets without other supporting strategic actions is inconsistent with our findings. Internationalization, alone, did not lead to increased profitability.Entrepreneurs of young technology-based firms who are considering internationalization should take heed of our results. Internationalization of sales does not appear to be a simple matter of applying established strategies and procedures developed for a domestic arena. Successful internationalization appears to require changes in the venture's strategy as well.     

资源稀缺、技术冲击与风险投资退出时机

通过建立风险投资退出时机选择模型,运用2004~2011年中国风险投资退出的季度数据考察了技术冲击和市场利率等因素变化对风险投资退出时机的影响。研究发现：（1）资源稀缺的程度与风险投资退出时机的选择有着非常紧密的联系;（2）市场利率的变化对风险投资的退出行为的影响具有不对称性：市场利率下降可能会导致风险投资加速退出质量较差的风险企业,同时却更长时间地持有质量较好的风险企业;（3）技术进步会增加风险企业的数量,提高风险投资市场上风险企业的平均质量,加速风险投资退出。     

Modeling and Forecasting the Sales of Technology Products

Managers in technology product markets require sales response models that provide substantive insights into the effects of marketing activities as well as reliable sales forecasts. Such markets are characterized by frequent introductions and withdrawals of multiple models by different companies. Thus, the data available on the performance of any individual model is scarce. A second characteristic is that the effects of product attributes and marketing activities could change over time as different types of consumers participate in the market at different points in time. Given sparse data, it becomes critical to specify a model that allows pooling of information across brand-models while at the same time providing brand-model specific parameters. We accomplish this via a hierarchical Bayesian model specification. Further, to capture the effects of changing consumer preferences over time, we specify a time varying parameter model. Our modeling framework therefore, integrates a hierarchical Bayesian model within a time varying parameter framework to develop a dynamic hierarchical Bayesian model. We employ data on digital cameras in the U.S. market to estimate the parameters of our proposed model. We use thirty-three months of national level data on the digital camera market with the data series beginning very close to the inception of this product category. We find that while there is little variation in reliance of benefits by early adopters, the second wave of adopters focus on Ease of Use followed by later adopters who rely on Storage and Image Quality. Looking at the elasticities of demand with respect to the various benefits, we find that at around the halfway point of our data series, the industry as a whole would have been better off investing in increasing image quality rather than storage if costs associated with the two are equal. However, at the end of the time horizon both benefits appear to have about equal impact. Further, the relative benefits of improving these attributes vary across brands and points in time. We then generate single period and multiple period ahead sales forecasts. We make different assumptions about information availability and find that the average (across brand-models and time) MAPE ranges from 7.5 to 14.5% for the model. We provide extensive comparisons of our model with 4 potential alternatives and find that our model outperforms these alternatives on the nature of substantive insights obtained as well as in forecasting out-of-sample especially when there is a very short time window of data.     

International versus domestic entrepreneurship: New venture strategic behavior and industry structure

International entrepreneurship is defined in this study as the development of international new ventures or start-ups that, from their inception, engage in international business, thus viewing their operating domain as international from the initial stages of the firm's operation.One hundred and eighty-eight new venture firms in the computer and communications equipment manufacturing industries are classified according to the percentage of their sales in the international market. Ventures with no sales derived from international activities are considered “domestic” new ventures, and ventures with sales from international activities comprising greater than 5% of total sales are considered “international” new ventures.The strategy and industry structure profiles of international new ventures are significantly different from domestic new ventures. The internationals pursue much broader market-based strategies, seeking a strategy of broad market coverage through developing and controlling numerous distribution channels, serving numerous customers in diverse market segments, and developing high market or product visibility. The internationals also emphasize a more aggressive entry strategy, building on outside financial and production resources to enter numerous geographical markets on a large scale. Securing patent technology is also an important component of their strategy. This suggests that the internationals compete by entering the industry on a large scale, seeking to penetrate multiple markets, with the recognition that external resources are necessary to support such an entry.Whereas both the domestics and the internationals characterize domestic competition as being relatively intense, the international new ventures compete in industries with higher levels of international competition. It is not clear from this research whether the new venture selects an industry with a high degree of international competition and therefore responds with an international orientation or, because the new venture has an international orientation, it perceives or recognizes a higher degree of international competition. Another industry structure difference is the internationals' perceived higher degree of restrictiveness due to government regulation. It is unclear whether this restrictiveness motivates new ventures to seek less-regulated international environments or if it indicates that when competing internationally, the new venture is confronted with increased regulatory requirements.Domestic new ventures are distinguished by their emphasis on a production expansion strategy and customer specialization strategy. The production specialization strategy consists of focusing on limited geographical markets, maintaining excess capacity, and pursuing forward integration. The customer specialization strategy incorporates the production of a specialty product that is purchased infrequently. Thus, for both of the domestic strategies, a consistent “closeness” between the producer and consumer is implied. This may be an important basis underlining the new venture's decision to compete in an exclusive domestic context.This study offers initial support for the notion of international entrepreneurship by its findings that there are significant differences between new venture firms competing domestically and new ventures choosing to also enter international markets.     

Firm networks and firm development: The role of the relational mix

This study examines the role of different networks, called the relational mix, on the development of the entrepreneurial firm. Our regression analysis of survey data from 60 venture capital-financed firms questions the importance of network size on firm development. Rather, our results suggest that different types of networks are more important for firm development. In particular, we found a significant positive relationship for reputational networks and a weak significant negative relationship for cooperative technology networks at founding with time-to-break-even. Social networks at founding have no direct effect on time-to-break-even and a significant negative relationship with sales in the years after foundation. Furthermore, our findings show the important role of marketing information and co-opetition networks (relationships with direct competitors) on firm development in the years after foundation. These results suggest that the relational mix is a more appropriate construct for explaining network development than network size alone.     

Empirical Analysis of Indirect Network Effects in the Market for Personal Digital Assistants

We present a framework to measure empirically the size of indirect network effects in high-technology markets with competing incompatible technology standards. These indirect network effects arise due to inter-dependence in demand for hardware and compatible software. By modeling the joint determination of hardware sales and software availability in the market, we are able to describe the nature of demand inter-dependence and to measure the size of the indirect network effects. We apply the model to price and sales data from the industry for personal digital assistants (PDAs) along with the availability of software titles compatible with each PDA hardware standard. Our empirical results indicate significant indirect network effects. By July 2002, the network effect explains roughly 22% of the log-odds ratio of the sales of all Palm O/S compatible PDA-s to Microsoft O/S compatible PDA-s, where the remaining 78% reflects price and model features. We also use our model estimates to study the growth of the installed bases of Palm and Microsoft PDA hardware, with and without the availability of compatible third party software. We find that lack of third party software negatively impacts the evolution of the installed hardware bases of both formats. These results suggest PDA hardware firms would benefit from investing resources in increasing the provision of software for their products. We then compare the benefits of investments in software with investments in the quality of hardware technology. This exercise helps disentangle the potential for incremental hardware sales due to hardware quality improvement from that of positive feedback due to market software provision.     

When are venture capital projects initiated?

This paper examines how public market information relates to the initiation of venture capital projects. Analysis of venture capital investments in the U.S. between 1980 and 2007 indicates that venture capitalists tend to defer new investment projects in target industries with substantial market volatility. This delay effect of market volatility is reduced if the target industry experiences high sales growth or if competition among venture capitalists is intense in the target industry. The paper provides further evidence to corroborate the view that venture capitalists rationally respond to market shifts in their investment decisions.     

Gibrat's law in marketing: The case of liquor brand sales

We test the applicability of Gibrat's Law in the liquor brand market. Basically, we model annual changes in the unit sales of the top fifty liquor brands as white noise. Our results reject this model, but we do find that changes in sales are independent of starting market sales. This leads to the interpretation that brands with above average market share do not tend to gain market share, i.e., initial market share does not affect the subsequent change in market share. Furthermore, brands with above average sales do not have more stable sales than do firms with below average sales. Changes in sales appear highly positively correlated between periods, i.e., brands that gain sales in one period tend to gain sales in the next. Finally, no major liquor type or manufacturer had consistently and significantly greater or lower success across our various annual time periods.     

Strategic Interactions,Bargaining Power and Stability of Joint Venture in an Emerging Nation

We model strategic interaction between a domestic firm and a foreign firm involved in a joint venture, incorporating negotiations over equity shares and its implications for stability in the context of an emerging country. The foreign firm has superior technology, whereas the domestic firm has better local market knowledge. Modelling simultaneous innovation effort and bargaining power over equity share, we provide a rationale for the stability of the joint venture. We find that a certain level of technological knowledge can empower the bargaining power under certain parameter configurations and assumptions, such that the firms will negotiate to agree over their equity shares and maintain the joint venture. In this context, the stability of the joint venture is always an expected outcome. We have also shown that the domestic firm’s bargaining power and knowledge acquisition directly affect the domestic firm’s R&D effort and threaten the stability of the JV. We try to justify a probable situation where the firms may negotiate hard over equity shares but still maintain the joint venture.

     

Informal risk capital investors: Investment patterns on the East Coast of the U.S.A.

In this study we profile a group of informal investors, their investment criteria and the nature of their referral network. The study supports the findings of several earlier studies. It indicates the existence of an extensive informal investment community on the East Coast of the U.S.A., which can provide substantial financial resources to startup and young firms. A full 58% of the sample investments were in startups; a huge proportion compared with formal venture capital sources. The study further supports earlier findings that this group is difficult to locate, for entrepreneurs and researchers alike. This opaque market consists primarily of friends and business colleagues who individually provide modest sums of money ($20,000–$50,000), but are often able to use their network to assemble a group of investors who will sponsor the entire funding requirement. 130 informal investors report that in three years they and their networks raised 38 million dollars to support 286 new venture proposals.There are also encouraging indications that these angels are both enthusiastic and persistent. Many of them claim that they have achieved higher returns via angel activity than any other investment options that they have tried. Of the angels who did better with alternative investment options, more than 80% are still prepared to make further investments. Even those who reported failed investments in the informal risk capital market remain supportive: over 65% indicate a willingness to invest again.The criteria by which the angels screen the proposals differ markedly from those of the venture capital community. In particular, the angels do not appear to be interested in a thorough business plan, a sine qua non for venture capitalists. Unlike the capital firms, angels are not interested in competitive insulation. They do not limit their investments to industries that are appealing, or with which they are familiar, nor do they care very much about the degree to which the entrepreneur has identified competition. However, they are in close agreement with the venture capital community in their concern with the management ability of the venture team and a requirement that there be a clear, demonstrated need for the product or service, preferably in a market with large potential.The study has shed some light on the structure of the referral networks of angels. Though we do not know from this study how the respondents themselves first heard of the ventures that were described in this survey, we do know that their referral network is composed primarily of friends and business colleagues; to whom they refer as much as 60% of the proposals that they receive and in which they themselves eventually invest. Thus they pass on serious opportunities to their network. Their referees are inclined to be very supportive; in our sample almost 75% of them also invested in the venture. The current strategy for informal investors is to approach mainly close contacts. These are inclined to be supportive (85% also invested in the venture) and to follow a trusting investment behavior pattern, relying mainly on the recommendation of the angel. This strategem ensures that the total capital requirements are met via the network. However, given the results of this study; the angels might be well-advised not to stop here, they might also approach at least one professional. Only a small proportion of professionals were approached by our sample of angels (less than 30%). As the study shows, professionals are more effective at selecting successful ventures. Thus a mixed strategy may be called for; use mainly trusting referees to ensure full capitalization and a limited number of professional referees to screen the proposals. This will help ensure that those proposals that do get supported by the more trusting members of the network have been competently screened, thus increasing to the probability of venture success.A discriminant analysis revealed some useful pointers in helping the informal investor select successful ventures. First it is critical to select only ventures in which the entrepeneur can be relied on to evaluate the risks of the ventures and manage these risks well; Angels do not need entrepreneurs that will gamble with their money. Equally important is to avoid placing too much credence on highly articulate sales pitches by the venture team, or too much reliance on ventures in which the main emphasis is on product and proprietary protection. Rather insist on being shown clear evidence that the product or service has channel and/or market acceptance. It is also important for Angels to stick to investments where they know the industry well, and to back venture teams with a solid reputation and a propensity to get involved in the details rather than gloss them over. As in the case of studies of venture capital investments, competitive insulation in the early stages of the venture is also important.     

The Two Sides of the Story: Network Investments and New Venture Creation

It is widely recognized that networks provide access to resources necessary for founding a new venture. However, they also come along with opportunity costs of time. We therefore argue that maintaining a set of network relationships is an investment that may not always pay off. More specifically, we develop detailed hypotheses on why the relationship between investing time in developing and maintaining a larger network and more intense network relationships and success in new venture creation may be best described by an inverted U. Testing our hypotheses on longitudinal data of 137 nascent entrepreneurs, we find broad support for our propositions.     

农产品网络交易模式与风险控制机制研究

伴随农产品交易体系不断完善,风险控制也得到加强,但农产品"卖难"的问题并没有完全解决,价格操纵现象时有发生。基于农产品的特点和销售渠道的不畅,传统现货市场的交易方式经常造成农产品价格失真。利用网络技术、电子金融和电子商务手段打造现代农产品网络交易市场,不仅能有效提高农产品交易的效率,而且能显著改善农产品价格的时滞性、分散性、波动性和信息不对称性。为此,研究农产品网络交易市场、交易模式和风险控制机制,对现代农产品交易市场的健康发展具有重要意义。     

Entrepreneurial network development: Trusting in the process

An entrepreneur's network can provide a significant source of social capital, which, in turn, may increase a new venture's likelihood of success. Entrepreneurship research has frequently examined how such networks develop, and reviewing extant studies suggests that trust plays a significant role in this process. Despite its recognized importance, limited research exists examining how trust evolves during and interacts with the entrepreneur's venture network development. Accordingly, we propose that an entrepreneur's reliance on exchange relationships based on affective and cognitive trust will vary as the entrepreneur moves through the network development process. We conclude by discussing both the model's implications and future research avenues.     

Women business owners in traditional and non-traditional industries

Small businesses continue to grow in importance to the national economy. According to the Small Business Administration, America's 22 million small businesses generate more than half of the nation's Gross Domestic Product and are the principal source of new jobs. The National Foundation for Women Business Owners reported that between 1987 and 1994, the number of women-owned businesses grew by 78% and women-owned firms accounted for 36% of all firms. Although the growth in the number of women-owned businesses is encouraging, the size of such businesses remains small in terms of both revenues and number of employees, especially in comparison to male-owned businesses. One explanation for this disparity is that female business ownership is concentrated primarily in the retail and service industries where businesses are relatively smaller in terms of employment and revenue as opposed to high technology, construction, and manufacturing.One of the most fruitful streams of research in women's occupational choice has been based on social learning theory. Specifically, self-efficacy has been found to relate to both type and number of occupations considered by college men and women, and with regard to traditional and non-traditional occupations. Entrepreneurship researchers have also used social learning theory to study entrepreneurial intentions. This study builds on that background of women's career development and entrepreneurial intentions to examine differences between traditional and non-traditional women business owners. We examine 170 women business owners in various traditional and non-traditional businesses in Utah and Illinois. Questionnaires were the primary method of collecting data, in addition to 11 in-depth interviews from a sample of the survey respondents. Using a careers perspective, based on social learning theory, we hypothesized that women in these two different categories of industries would differ on levels of self-efficacy toward entrepreneurship or venture efficacy, their career expectations and their perceived social support. A second analysis was also done that explored the relationship between the same independent variables and success or performance of the business. The results offer support for using this integrative model to understand differences between women in traditional and non-traditional industries. The first analysis revealed that significant differences exist between the two groups on several of the independent variables. Traditional business owners had higher venture efficacy for opportunity recognition, higher career expectations of life balance and security and they reported that the financial support received from others was more important to them than those in non-traditional businesses. On the other hand, the non-traditional owners had higher venture efficacy for planning and higher career expectations for money or wealth than the traditional group.The second analysis explored whether success, as measured by sales, was affected by differences in venture efficacies, career expectations, or perceived support received by women in traditional businesses as compared to those in non-traditional ones. This analysis revealed that traditional women business owners might have different factors that contribute to their success than non-traditional owners. Specifically, for the traditional owners, venture efficacies for opportunity recognition and economic management as well as the career expectation of autonomy and money (or wealth) were positively related to sales. For the same group efficacy toward planning and the need for security were negatively related to sales. For the non-traditional women, venture efficacy toward planning and the career expectation of autonomy were positively related to sales while the expectation of money or wealth was negatively related. Also for the same group, the perceived importance of the emotional and financial support was negatively related to sales.In the past, most of the entrepreneurial research has used predominantly male samples of entrepreneurs. Those that include women entrepreneurs generally are comparative, between men and women. This study's comparison of two groups of women entrepreneurs offers a unique contribution to the field.Future research is recommended to further understand how venture efficacy and career expectations affect the decision to start a new business in a particular industry. It would be particularly beneficial to study venture efficacy and career expectations of prospective women entrepreneurs prior to the start of the business. Similarly, greater attention should be given to understanding how venture efficacy develops in different individuals.     

Learning to do Business in China: The Evolution of BAT's Cigarette Distribution Network, 1902–41

This article traces the development of BAT's cigarette distribution network in China. It demonstrates that BAT utilised the connections that expatriate managing agencies had developed with Chinese merchants in the treaty port economy of Shangai during the late nineteenth century, and shows how these linkages were subsequently developed into a distribution network to serve the whole of China. The keys to the success of BAT's selling organisation in China lay in two main areas of competence: first, the company's ability to develop accounting and credit control systems that both monitored its cigarettes and minimised the risk of bad debts; and, secondly, in its ability to foster competition within its own sales teams by creating parallel distribution mechanisms throughout much of China, in particular through the creation of a joint venture with the Chinese-run Wing Tai Vo Corporation. By the 1930s BAT's products were widely available in China, despite the upheavals that acted to undermine the development of a national market there.     

Services vs. Manufacturing – How Does Foreign and Domestic Sales Impact on Their R&D?

While the distinction between manufacturing and services becomes increasingly blurred to some observers, we find, using a panel of Swedish firms, clear evidence that foreign sales (exports) are more important than domestic sales for stimulating R&D. This is particularly clear for manufacturing and this importance of foreign sales has increased over time, simultaneous to an opening up of the Swedish economy. Even though service industries have seen an increase in both R&D and trade over time, it is thus mainly manufacturing that has benefited from increased possibilities for absorptive capacity. This result suggests a clear dichotomy between manufacturing and services in terms of how they react to trade and how they turn towards the foreign market vs. the domestic market to find stimuli for innovation.     

The role of domestic and cross-border venture capital investors in the growth of portfolio companies

This paper studies how the presence of cross-border as opposed to domestic venture capital investors is associated with the growth of portfolio companies. For this purpose, we use a longitudinal research design and track sales, total assets and payroll expenses in 761 European technology companies from the year of initial venture capital investment up to seven years thereafter. Findings demonstrate how companies initially backed by domestic venture capital investors exhibit higher growth in the short term compared to companies backed by cross-border investors. In the medium term, companies initially backed by cross-border venture capital investors exhibit higher growth compared to companies backed by domestic investors. Finally, companies that are initially funded by a syndicate comprising both domestic and cross-border venture capital investors exhibit the highest growth. Overall, this study provides a more fine-grained understanding of the role that domestic and cross-border venture capital investors can play as their portfolio companies grow and thereby require different resources or capabilities over time.     

An examination of the influence of industry structure on eight alternative measures of new venture performance for high potential independent new ventures

This study examined the influence of the structure of new ventures’ entered industries on eight alternative measures of new venture performance for 199 high potential independent new ventures. Each of the 199 entrepreneurial ventures had undertaken an initial public offering (IPO) within the first 6 years of the venture’s founding date and were free of corporate sponsorship or prior corporate parentage.Specifically, this research examined the influence of: (1) stage of the life cycle; (2) industry concentration; (3) entry barriers; and (4) product differentiation on eight alternative measures of new venture performance. The eight measures of new venture performance examined in this research consisted of: (1) change in sales; (2) sales level; (3) net profit; (4) earnings before interest and taxes; (5) return on sales; (6) return on assets; (7) return on invested capital; and (8) return on equity.Most prior research examining the influence of industry structure on new venture performance has: (1) utilized only one or two measures of new venture performance as indicators of the venture’s overall effectiveness and efficiency; (2) often failed to provide theoretical justification for the measure(s) of new venture performance or industry structure examined; and (3) utilized data derived from questionnaires and/or the PIMS data base of corporate-sponsored new ventures. In addition, prior industry structure studies examining independent new ventures have often utilized relatively small sample sizes.This study sought to advance the progress in the field of entrepreneurship with regard to understanding the influence of the structure of new ventures’ entered industries on new venture performance by: (1) examining eight alternative measures of new venture performance; (2) providing theoretical justification for the measures of new venture performance and industry structure examined; and (3) utilizing the largest nonquestionnaire data base of independent new ventures developed to date.This research found that the stage of the life cycle of the venture’s entered industry was the most important determinant of new venture performance among the four industry structural elements examined. Stage of the life cycle had a statistically significant relationship, at a 0.05 level, with the majority of the new venture performance measures examined in this research. In addition, ventures entering industries in the introductory stage of the life cycle achieved the highest levels of venture performance, particularly when compared with those ventures that entered industries in the mature stage of the life cycle.However, this study did not find a statistically significant relationship between stage of the life cycle and change in sales. This suggests that there is a trade-off between profitability and sales growth, and that new ventures that undertake an IPO have a stronger focus on achieving profitable operations rather than sales growth during the initial years after their IPO. This may be due to pressures placed on the new ventures to achieve profitability by the external credit market.Conversely, this research found that: (1) industry concentration; (2) entry barriers; and (3) product differentiation did not have statistically significant relationships, at a 0.10 level, with any of the eight alternative measures of new venture performance examined in this research. However, this research did find that over 90% of the new ventures entered industries characterized by: (1) a low degree of industry concentration and (2) a high degree of product differentiation.The relative absence of new venture entry into industries characterized by: (1) high degrees of concentration and (2) low degrees of product differentiation provides support for prior theory, which suggests that successful entry into such industry environments may be substantially more difficult.In sum, the results of this research suggest that high potential independent new ventures that undertake an IPO should enter industries in the introductory stage of the life cycle. In addition, the results of this research suggest that industries characterized by: (1) relatively low degrees of industry concentration and (2) highly heterogenous products may be necessary but not sufficient conditions for successful entry by high potential independent new ventures seeking to raise equity capital through an IPO.     

Critical assumption planning: A practical tool for managing business development risk

Although much has been written about the practice of new business development, the authors continue to find corporate managers and entrepreneurs repeating the same mistakes and often reaching the conclusion that venturing in the corporate environment won't work. The problem stems from a mental model about how business should be managed and managers' performance assessed. Corporate managers of existing businesses are judged against meeting plan. In growing new businesses, however, strict adherence to “the plan” can lead to business failure. To manage business development risk, venture managers must learn to deal with uncertainty. Whereas managers of mature businesses practice the ethic of predictability, venture managers must follow a learning ethic.Working with Fortune 100 corporations, the authors have evolved a practical, disciplined process for business development risk management that focuses on learning. Titled critical assumption planning (CAP), the process maximizes learning about new markets at lowest cost. Major uncertainties in the business proposition are isolated as critical planning assumptions. Critical assumptions in the plan are then tested. The test sequence is determined by the potential reduction of uncertainty per dollar of test cost. Assessment of the assumption test results marks a milestone. At each milestone the business plan is revised to reflect what has been learned, and the venture is redirected or terminated. This process avoids the wasted effort and expense of pursuing the original plan until commercial failure becomes obvious.The key steps in this learning process are identification of critical assumptions and cost-effective testing of assumptions. Because these steps are unfamiliar to most corporate managers, effective use requires a new perspective and new planning tools. The study explains this perspective and introduces new tools for employing the process. Following are some planning innovations that have been effective in changing perspective and that also are of practical use:

1. 1. Differentiation between primary and derivative assumptions with focus on extracting and understanding the primary assumptions.

2. 2. Early construction of a model of the business plan that allows calculation of the impact of primary assumptions such as price or sales productivity factors on derivative assumptions such as revenues and income.

3. 3. Assignment of uncertainty ranges to the primary assumption values, not just the most likely values.

4. 4. Identification of the critical planning assumptions by determining the impact of their uncertainty ranges on venture net present value.

5. 5. Selection of the next venture milestone based on the test program that results in maximum reduction of uncertainty at least cost in least time for the most critical assumption(s).

Using CAP, managers can control risk despite the many uncertainties surrounding a new business proposition. Above all, decisions to stop or redirect ventures can be taken earlier, saving the corporation money and venture managers their career credibility.