University of Minnesota
Minneapolis, MN 55455
Product-market strategies and evolution of new businesses; the product-market development map; temporal sequences of the product-market development; differences between service and manufacturing sectors.
In-depth, qualitative analysis of 26 cases describing growth of entrepreneurial ventures. Seventeen of the ventures were primarily involved in producing products, while the remaining nine were in the service sector. The application of the "mapping" process developed earlier allowed us to follow year-by-year product-market changes that took place, and to categorize them into one of the six categories of product line modification or four categories of product line addition.
Market expansion, which we measure on two dimensions, preceded product line extension (which may follow one or more of six identifiable paths), and product line additions (which may occur in four different forms). All 26 companies studied went through the stages of-demographic expansion (selling to the new groups of customers), and through the simple product appearance changes. For the majority of the companies studied, product line modification preceded product line addition. The analysis allowed us to identify several temporal patterns in the product modification group. However, within the product addition group there was no clear pattern of evolution from simpler to more complicated types of changes. In fact, in some cases addition of unrelated product lines preceded addition of complimentary products. We found noticeable differences in the product-market change patterns between the service and manufacturing firms. One of the major differences is that service companies ventured into product additions earlier than the manufacturing companies.
Every transaction made by a new business represents a product-market
choice. Entrepreneurs may try to sell more of the original product
to initial customers, and/or to new customers; to sell modified or newly
developed products to initial customers and/or to different customers.
Cooper (1984), Roberts (1990), and Buskirk (1993) offer empirical support
for the critical role of product-market strategies in sales growth of a
fledgling firm. Meyer and Roberts (1986), Roberts (1991), Tyebjee
(1983), Feezer and Willard (1990), and Cardozo et al. (1993) discuss different
product-market strategies of growing businesses and their influence of
sales growth. These studies suggest that both products offered
and markets served change as businesses mature. Nonetheless, precise
sequences of those changes have not been broadly studied, largely because
adequate analytical techniques and measures have not been available.
In our earlier research (Cardozo et al. (1993), (1994); Ardishvili and
Cardozo (1994), Harmon, Ardishvili, and Cardozo (1996)), based on in-depth
case studies of entrepreneurial ventures, we developed a product-market
matrix, that enabled us to "map" in considerable detail the manner in which
product-market changes occur in new businesses.
The present findings increase our understanding of product-market change that occurs as businesses mature. The research findings described in this paper help to set stage for further investigations into the nature of product-market evolution. First, we need to analyze a larger sample of service industry cases, to understand the reason for the pattern differences with the manufacturing sector. Second, a statistically accurate sample of firms needs to be surveyed to determine whether the patterns identified on the qualitative analysis stage can be generalized to larger population of new businesses.