Academic journal article Entrepreneurship: Theory and Practice

How Do "Resource Bundles" Develop and Change in New Ventures? A Dynamic Model and Longitudinal Exploration

Academic journal article Entrepreneurship: Theory and Practice

How Do "Resource Bundles" Develop and Change in New Ventures? A Dynamic Model and Longitudinal Exploration

Article excerpt

According to recent studies applying Resource-Based Theory [RBT] to entrepreneurial firms (e.g. Chandler & Hanks, 1994; Brush & Greene, 1996), in the early stages of new venture development it is the identification and acquisition of resources--rather than deployment or allocation activities--that is crucial for the firm's long-term success (Stevenson & Gumpert, 1985). This study explores that relationship longitudinally, tracking salient resources in three rapidly growing new ventures, and analyzing how these resources change over time. Our findings identify the most common types of salient resources, the primary types of changes in resource and resource bundles, and a pattern linking the type of change with short-term performance results in each firm.

An increasing number of entrepreneurial scholars are using the Resource-Based Theory (RBT) of the firm to better understand the role of resources in new venture start-up and development (Chandler & Hanks, 1994; McGrath, 1996; Mosakowski, 1993). In RBT, organizations are seen as "bundles of resources," which are defined as all tangible and intangible assets that are tied to the firm in a relatively permanent fashion (Caves, 1980; Wernerfelt, 1984). According to the theory, resources can be combined or developed over time to generate unique capabilities that increase competitive advantage (Amit & Schoemaker, 1993).

In the early stages of new venture development, it is the identification and acquisition of resources--rather than deployment or allocation activities--that are crucial for the firm's long-term success (Katz & Gartner, 1988; Brush & Greene, 1996). Entrepreneurs make judgments about which resources are more or less important based on their expectations about the future of the firm (Penrose, 1959; Glade, 1967). Studies have shown that firms of different sizes and ages are characterized by resource combinations (Brush & Chaganti, 1999; Mosakowski, 1993). Further, as a new venture moves through phases of development, it becomes necessary to develop or transform resources (Penrose, 1959), or spin off negative resources (Stevenson & Gumpert, 1985), to retain the right fit of resources to changes in product/market strategy (Chandler & Hanks, 1994) and in the environment. Thus, shifts in the types and combinations of resources are characteristic of the growth and development of new ventures (Penrose, 1959; Mosakowsk i, 1993). These shifts, if they are undertaken well, should lead to increased competitive advantage, which would increase performance. In turn, these performance outcomes should influence which resources will next be identified, acquired, or developed, as a means to extend growth or improve fit in dynamic environments. The process outlined here is depicted in Figure 1.

In spite of the importance of understanding resource decisions in the early stages of venture development, comparatively few studies have empirically explored resource-based theory, and virtually none have examined resource changes longitudinally in order to test whether and how resources and resource bundles change in new ventures. There are two implications to this lack of research for practicing entrepreneurs. First, although new ventures begin with the entrepreneur's initial resource endowments, the firm cannot develop over time without acquiring and developing additional organizational resources (Chandler & flanks, 1998). When a firm is fast growing, or competing in a dynamic environment, these choices can have important consequences for survival. In these early phases, the entrepreneur makes choices about which resources are most important to acquire throughout the development sequence. Thus, some resources become more "salient" than others at any given time. By asking entrepreneurs and their top manag ers which resources are receiving attention, a much richer view of the resource acquisition process might be generated. …

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