Academic journal article
By Schoonhoven, Claudia Bird; Eisenhardt, Kathleen M.; Lyman, Katherine
Administrative Science Quarterly , Vol. 35, No. 1
We used the techniques of event-history analysis to examine the speed with which newly founded organizations ship their first products for revenues, an important entrepreneurial event. In a longitudinal study of new ventures in the U.S. semiconductor industry, we found that substantial technological innovation lengthens development times and reduces the speed with which first products reach the marketplace. Organizations that undertook lower levels of technological innovation, had relatively lower monthly expenditures, whose founding organization structures included both a manufacturing and a marketing position, that had more competitors in the marketplace, and were founded in the Silicon Valley region of the U.S. shipped their first product for revenues significantly faster than other new ventures. Since several theoretical perspectives were utilized, results indicate that it is worthwhile to synthesize from several perspectives in order to understand the timing of entrepreneurial events. Implications for theory and future research on new organizations are discussed.(*)
New organizations face a perilous childhood. According to "liability of newness" arguments, newly founded organizations are particularly prone to failure (Stinchcombe, 1965). Compounding liabilities posed by newness and small size, new organizations seeking to develop products that reach beyond prevailing technical standards must overcome an additional liability derived from the process of new knowledge development. This paper examines the impact of technological innovation, entrepreneurial and organizational characteristics, and environmental variables on a significant entrepreneurial event: the number of months from its date of founding that it takes a new organization to ship its first product for revenues.
Several theoretical as well as practical concerns generate interest in this entrepreneurial event. Shipping its first product for revenues is a major milestone for a new organization. Among several events that occur in new firms, the speed with which an organization ships its first product to market is significant. Fast products are important (1) to gain early cashflow for greater financial independence, (2) to gain external visibility and legitimacy as soon as possible, (3) to gain early market share, and (4) to increase the likelihood of survival. In general, the more quickly a new venture develops its first product and ships it to the first customer, the more quickly it will embark on the path to greater financial independence. During the research and development period when a strong revenue stream does not exist, new firms are dependent on investors for their operating capital. When the first shipment for revenues is made, the new firm is on its way to a more favorable resource-dependence position. Gilman (1982), who studied the rate at which industrial innovations were first introduced to the marketplace found that an innovation's economic value is sensitive to the elapsed time between initial investment and the time at which earnings start. Shorter development times created greater economic value for the innovating organization.
Shipping the first product for revenues is also thought to be a favorable harbinger of survival for new organizations. Rapid pace is an advantage in many high-technology industries (e.g., Eisenhardt, 1989a), and, specifically, in the semiconductor industry speeding products to market is acknowledged as one of the major bases for survival. Britain and Freeman (1980) reported that in semiconductor firms, executives "seemed to view themselves as participants in a race. Failure to keep up [with technological innovation] meant the firm's failure" (Freeman, 1982: 11). Similarly, in an interview for a study of innovation among semiconductor and electronics firms, Charles Sporck, the chief executive of National Semiconductor, stated, "Time is a real fact, and it is an awesome fact. If you get the product out six months [later], even though it may be better, the market may be lost, and so you have failed" (Jelinek and Schoonhoven, 1990: 314). …