Patterns of growth, competitive technology, and financial strategies in young ventures

Abstract Young, independent, technology-based ventures have an increasingly complex array of strategic choices about how they can grow while simultaneously competing on the basis of their technological capacity and skills in their markets. Given the central importance of these choices to the success of the venture, there should be a close, integral relationship among them. Similarly, financial strategy choices also enter this relationship. Growth and competition place tremendous resource demands on the young technology-based venture, and financial strategy choices therefore must also be factored into the choice-taking process. The choice-taking perspective is basic to this inquiry. As other researchers have pointed out, young entrepreneurial ventures typically do not utilize highly formalized strategic planning processes (Robinson and Pearce, 1983). Strategy formation in such firms tends to be informal and episodic. Strategy may be revealed best through the pattern or set of choices taken at a point in time and over time. From a choice-taking perspective, then, the critical questions become the following: (a) Are there identifiable patterns of growth, technology, and financial choices? (b) what factors shape or determine which choices are taken? and (c) are these patterns related to venture performance? These questions were explored by using data from a survey of 100 CEOs of young, independent, technology-based firms across three industries. The results generally support the idea that patterns of choices can be identified. Several of these patterns are related to the ventures' demographic characteristics, such as form of ownership and scope of sales. Importantly, stage of development was not related to those patterns, nor to the performance of the ventures. The highest-performing ventures were found to be pursuing internal innovation through R & D for product breakthroughs. This finding is surprising, since young ventures at the stage at which most were found in this sample would traditionally be expected to emphasize product extensions and modifications. We need to better understand why young ventures would choose to innovate internally for breakthroughs in their growth stages, and how well they are able to do so. A major implication of this research is that the CEOs of young technology-based ventures are being presented with a much larger “menu” or array of choices, at many points in time, than conventional stage-based models of venture development have postulated. One explanation of this possibility is that the firm life cycle is being compressed by relatively new conditions, such as the availability of more and earlier capital through joint venturing and alliances, and shorter product life cycles. Indeed, a follow-up survey a year later with 77 CEOs from this sample confirmed that joint ventures and alliances were the number-one choice being pursued to gain access to distribution channels and new markets. What is troubling about this possibility is that the skills and capacities of these young ventures may be limited in comparison with the richness and complexity of the available choices. In the follow-up survey, the sources of information that were by far the most relied upon for strategic decision making were other internal senior managers and board members, outsiders such as lawyers ranking distantly behind. The leaders of these ventures need to be fully supported in evaluating, negotiating, and managing these often highly complex relationships.