A Profile of New Venture Success and Failure in an Emerging Industry

This study examined three types of factors: (1) the characteristics of the lead entrepreneur, (2) startup processes undertaken during the founding of the firm, and (3) firm behaviors after start-up, including management practices and strategic behaviors, associated with new venture success and failure. The research involved a field study of 26 small, young firms; 13 successful and 13 less, successful (or failed), each engaged in the distribution of fresh juices in eight metropolitan centers (about 30% of the total market) in the United States. Both quantitative and qualitative data were collected through field work at each firm location. A statistical analysis of data collected in a structured questionnaire was the primary method for testing the factors. Case studies of all of the firms were developed to provide qualitative support for the quantitative findings of the study. Results from these analyses indicated significant differences between successful and unsuccessful firms in all three categories. Lead entrepreneurs in successful firms were more likely to have been raised by entrepreneurial parents, have had a broader business and more prior startup experience, and believed they had less control of their success in business, than unsuccessful entrepreneurs. Successful entrepreneurs seek to reduce risk in their businesses. They work long hours, have a personal investment in the firm, and are good communicators. Successful firms were those initiated with ambitious goals. Lead entrepreneurs had a clear broad business idea which provided the adaptive torque required to overcome adversity, confrontation, and often, a troubled financial condition. Effective startup or purchase required broad planning efforts that considered all aspects of the industry and firm. Successful firms spent more time planning (237 hours) than unsuccessful firms (85 hours). The use of outside professionals and advisors for help in solving specific problems during startup was important for success as well as the advice and information provided by other industry participants, particularly customers and suppliers. Most ventures did not have written business plans. Nearly all purchased firms failed. Buyers of competitively troubled firms were negatively displaced, generally unemployed managers who lacked broad management experience, and while often well educated, had no prior experience in purchasing a business. Successful firms were found to be more flexible, participative, and adaptive organizations. These firms had employees who could perform the work duties of others and were likely to be managed in a way that provided these workers with the flexibility to modify their jobs to adapt to changing industry and organizational conditions. Lead entrepreneurs of successful firms were likely to spend more time communicating with partners, customers, suppliers, and employees than the lead entrepreneurs of unsuccessful firms. Successful firms sought to become larger firms and embarked upon sales to broad sectors of the market. Successful firms achieved high market shares; with market shares came higher financial returns. Less successful firms were restricted to narrow market sectors consisting of smaller customers and those more difficult to service. While customer service remained an important concern, the commodity nature of fresh juices failed to support differentiation, and the narrowly focused firm was typified by high product costs and unprofitable operations.