By Nagaveena Manjunatha
All new ventures are fragile. In the last decade, triggered by technological breakthroughs and regulation, the number of new firms increased dramatically. While some of these ventures created successful public firms and jobs in the short run, many failed within a few years. Even if revenues are growing, chances are that company has not yet hit breakeven. To manage through this precarious time it is necessary to understand how and why these boom and bust cycles occur. It is also important to examine survival and failure patterns.
Failure of new ventures is an area that has not been systematically explored in the strategic management or entrepreneurship literature. The asymmetric nature of information about emerging markets, products/services are processes allows entrepreneurs to seek out those resources that can be recombined in new ways and sold at profit. The duration between the emergence of opportunity and its diffusion is influenced by many factors such as performance and strategy. Impact of top management on firm’s performance cannot be neglected.
All though entrepreneurs constitute a key economic driving force for many emerging economics, they often face unstable environments due to failure of governments to maintain civil and political order. Political and civil violence directly affect new venture survival. Moreover, it is unclear whether standard theories about strategy such as planning hold true in such environments.
In the search to understand the creation, survival and growth of new ventures legitimacy plays a key role. It is always argued that legitimacy is a resource for new ventures – a resource at least as important as other resources such as capital, technology, personnel, customer good will and networks. Other important factors to be analyzed are, for how many days do the venture has to live? Businesses fail because they run out of cash. Knowing exactly how many months or days the venture has to live can help to manage costs and plan funding strategies. It is essential to have a clear vision before taking up a new venture. Funder should know exactly why they should make the effort. Top management should be precise about the issues that deserve the highest priority.
These may not be the most urgent but they are the ones that new venture’s success depends on. Control systems are essential to the survival, success and growth of most organizations. In mature organizations, existing control systems may reflect current strategic issues but they may also present controls that persist while divorced from the issues responsible for their generation. To date, control systems research focuses primarily on mature firms, as little is known about how new ventures control their operations.
The emergence of new technology based firms broadly and positively effects economic development. However such new organizations suffer from a liability of newness and struggle to survive the first years of operations. Initial resources affect the new venture’s ability to survive its adolescence. By properly managing internal resources and by maintaining heterogeneity in functional experience of the founding team and technology with a degree of radicalness, firms can reduce the likelihood of failure.