Chapter Listing | Return to 1997 Topical Index


INTRODUCTION
 
    The early years of a new business are thought to be critical in determining long term performance and even survival. Theorists have used multiple models of organizations to examine the relationship between initial founding conditions and subsequent performance of new ventures. Environmental conditions outside the control of the entrepreneur have been seen as imprinting the new venture and determining its subsequent development and performance (Boeker, 1989). According to this perspective market structure dictates appropriate competitive strategies which ultimately determine new firm performance. An alternative view has emerged in recent years which puts control over performance within the firm. The resource-based view of the firm sees the ability of the new venture to acquire and effectively manage resources as the key determinant of the firm's profitability and performance (Wernerfelt, 1984). Such resources provide the basis for developing core competencies which impart competitive advantage (Prahalad, and Hamel, 1990).  In addition to tangible resources, or assets ('things which one owns'), skills or competencies are seen as important invisible assets (Hall, 1992). Intangible resources may be especially critical in the development of new ventures. Entrepreneurs who can develop or accumulate "subjective resources of knowledge" (Hall, 1991) that allow them to solve problems and adapt to changing market and environmental conditions may be able to better overcome the 'liability of newness'.

    Entrepreneurs launching new ventures face many problem situations. Not only must they develop a strategy that positions the firm in the marketplace and acquire critical tangible resources from the environment, but the entrepreneur must grapple with such internal matters as financing, marketing,   and   management   of   resources.   Skills   or   competencies    that  lead  to  effective acquisition and  processing   of   information  and  knowledge  can   lead  to  patterns of  collective learning that provide a core competence and a strategic competitive advantage (Bogaert, Martens, Cauwenbergh, 1994).

Despite the recognition that knowledge based resources can provide a differential resource position, the relationship between organizational learning, core competence, and sustainable competitive advantage is under explored (Helleloid and Simonin, 1994). This article attempts to advance understanding about this relationship by investigating the nature of managerial problems that entrepreneurs commonly face during the startup phase. We seek to understand how managerial problems at the time of startup and through the early years impact the firm's performance. Specifically, we are interested in whether problem solving yields organizational learning that increases the new venture's probability of survival. We contrast the performance of firms that have no managerial problems with firms that have managerial problems and with those that were able to solve managerial problems.

    Managerial problems of new ventures, we believe, are likely to vary by several factors which may influence the organization's learning capabilities. In particular, the firm's growth pattern during its early years is considered important. The dynamics of initial sales volume and the pattern of the sustained trend may impact the way organizations learn and develop expertise in problem solving. New ventures that have high initial sales that taper off into a low volume in later years may become differentially proficient at knowledge acquisition and problem solving than firms that experience a steady rate of sales throughout the early years. To investigate the extent to which the relationship between problem solving capabilities and performance depend on the growth pattern of the business, we examine the nature of managerial problems of new firms and their sales performance to determine what impact, if any, it has on the survival of the new firm.

    We examine eight measures of managerial situations:  (1) coping with government regulations, (2) developing good relations with unions, (3) finding qualified people, (4) selecting lawyers and accountants, (5) coordinating, motivating, and compensating personnel, (6) minimizing startup team conflicts, (7) finding qualified executives, and (8) establishing goals and strategic plans. We identify three outcomes of firms on each of the eight managerial situations: (1) the firm had no problem at startup and no problem at a later date, (2) the firm had a problem at startup, but solved the problem at a later date, and (3) the firm had a problem at startup and the problem exists at a later date.

Top of page | Chapter Listing | Return to 1997 Topical Index


1997 Babson College All Rights Reserved
Last Updated 03/30/98