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Emergence of New Ventures—Life Cycle vs. Punctuated Change

Much of the study of new venture development is based on the life–cycle perspective of change (e.g. Greiner, 1972; Hanks, Watson, Jansen & Chandler, 1994). This paradigm argues that a company's life can be distinguished as a number of sequential stages, following a now familiar pattern of start–up, growth, formalization, and so on (e.g. Quinn & Cameron, 1983). Empirical evidence suggests that managers do think in terms of the ‘stage’ of their company (Eggers, Leahy & Churchill, 1994), and a recent taxonomy found distinct configurations of structural variables that correspond to four theoretically defined stages (Hanks, et. al,, 1994). Each stage lasts approximately 4 years in length (calculated as the average difference of the mean ages of the four stages), thus only the first two stages are generally reached during the first seven years of growth.

In contrast to the image of incremental growth that is assumed in the life–cycle theory (Van de Ven & Poole, 1995: 524), several entrepreneurial scholars have argued that organizational emergence happens in ‘spurts’, i.e. in very rapid punctuations that transform the company in ‘discontinuous’ ways (Schumpeter, 1934/1955; Stevenson & Harmeling, 1990; Bygrave & Hofer, 1991). Following earlier work on punctuated equilibrium (Tushman & Romanelli, 1985; Gersick, 1988), Katz developed such a punctuated model of entrepreneurial emergence (1993). The model argues that each organizational ‘stage’ can be seen as a combination of four properties of emerging organizations (from Gartner, 1985), where a trigger creates a revolution or shift in the content of these properties, resulting in a new combination that
remains stable for a relatively stable period: “This movement [is] more of a disjoint, chaotic process than an orderly one” (Katz, 1993: 99; c.f. Bygrave, 1989).

This method of punctuated change can be easily integrated with the RBT to generate a theory of punctuated growth of a firm. In this synthetic model, each unique combination of properties is a unique bundle of resources that generates firm–specific capabilities over time. Theoretically at each stage the task of the entrepreneur is to optimally leverage the resources within the firm to expand the firm’s productive capacity; this expanded productive capacity provides more leverage to acquire more resources, to further expand productive opportunity, and so on (Penrose, 1959/1995). Again, theoretically, each cycle of expansion would depend on the right leveraging of resources through re–combination or re–configuration of human, social, physical, organizational and/or financial capital. A model of this process is given in Exhibit #1.

What are the catalysts for change? Internally these could be temporal or event milestones (Block & MacMilian, 1991), signifying the completion of specific goals set up by the entrepreneur, or ‘drop dead’ dates set up by the entrepreneur or the venture’s board of directors (Gersick, 1994; Brush & Greene, 1996) or resource providers (Stone & Brush, 1996). Externally these could be determined by structural factors of resource dependence (Bruno & Tyebjee, 1982), or industry–based sources of support (Brush & Greene, 1996; Stone & Brush, 1996). Thus we suggest that organizational punctuated equilibrium (Gersick, 1988; Katz, 1993) offers a useful model to examine resources changes in growing ventures. Further, this model can be well integrated with the Resource–Based Theory of the firm, by suggesting that each stage of organizational growth can be represented as a distinct ‘bundle’ of resources which serves to increase the capacity and strategic advantage of the firm at that point in its development.

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