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Jeremy A. Woods Department of Management Carl H. Lindner College of Business

The Impact of Innovation and Market Orientation on Nascent Ventures’ Sales Revenues: Evidence from the PSED2 Data Set. Jeremy A. Woods Department of Management Carl H. Lindner College of Business University of Cincinnati August , 2012. Nascent Ventures.

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Jeremy A. Woods Department of Management Carl H. Lindner College of Business

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  1. The Impact of Innovation and Market Orientation on Nascent Ventures’ Sales Revenues:Evidence from the PSED2 Data Set Jeremy A. Woods Department of Management Carl H. Lindner College of Business University of Cincinnati August, 2012

  2. Nascent Ventures • Nascent entrepreneurial ventures represent an enormous potential for value creation in economies around the world (Chrisman, 1999). • However, the vast majority of these firms never succeed in achieving initial sales revenues (Everett & Watson, 1998).

  3. Innovation & Market Orientation • Two factors which scholars have suggested are important determinants of nascent ventures’ success are: • The innovativeness of their products and services (Covin & Slevin, 1989; Lumpkin & Dess, 1996; Miller, 1983). • Their understanding of customers’ demands in light of current offerings in the marketplace (Hult, Snow, & Kandemir, 2001).

  4. Summary of Findings • This paper tests the importance of these factors utilizing a sample of 1,179 nascent ventures from the PSED2 data set. • The results suggest that firms which fill gaps in current market offerings achieve initial revenues more quickly than those which introduce innovative products and services. • These results provide empirical confirmation of the predictions of extant literature regarding the relative impact of market orientation and innovation on nascent venture sales revenues. • The results also provide longitudinal evidence for the amount of time may take for innovation to impact nascent venture revenues.

  5. Innovation • Innovation, broadly stated, can be seen as the introduction of new or different products & services to the marketplace (Hult et al., 2001). • The greater willingness of customers to pay for new or different products as opposed to more familiar ones has long been highlighted by entrepreneurship scholars as a critical factor in determining which firms survive and which firms perish (Schumpeter, 1934, 1942).

  6. Innovation • One critical element of innovation is the extent to which production is based on new technology (Damanpour, 1991). • Products & services based on new technologies often add more value for customers than those based on older technologies. • Another important element of innovation is R&D spending (Dalziel, Gentry, & Bowerman, 2011). • The greater the level of investment a firm makes in R&D, the more likely that firm is to create new and different products and services for the marketplace.

  7. Innovation • Based on the aforementioned logic, I submit the following: • Hypothesis 1: nascent ventures which introduce innovative products and services to the marketplace are more likely to achieve initial sales revenues than those which do not.

  8. Market Orientation • Market orientation, broadly stated, is the focus of firms on creating value for customers (Day, 1994). • Two sub-components of firms’ market orientation are attentiveness to their competitive positioning and attentiveness to customer demands (Hult et al., 2001). • Ventures which offer products and services which are in demand by consumers, but for which there are few offerings from existing competitors, tend to find a customer base willing to pay for the value they create.

  9. Market Orientation • Based on the aforementioned logic, I submit: • Hypothesis 2a: nascent ventures which introduce products and services which fill gaps in customer demand are more likely to achieve initial sales revenues than those which do not. • Hypothesis 2b: nascent ventures which introduce products and services which fill gaps in competitors’ offerings are more likely to achieve initial sales revenues than those which do not.

  10. Results • This paper performed logistic regression analysis on five variables from wave A of the PSED2 data set (1,179 nascent ventures across the USA) as predictors for whether a firm had achieved initial sales revenues or not. The variables analyzed included: • Whether the availability of the technology to produce a venture’s products and services was new (questions AS3 and AS4). • The priority which the venture placed on R&D (question AS5). • Whether the venture had achieved initial sales revenues or not (question AE13). • The newness of a venture’s products and services to its target customers (question AS1). • Whether the lack of competitors offering products and services similar to the venture (question AS2).

  11. Results – Hypothesis 1 • To test hypothesis 1, I examined whether the availability of the technology to produce a venture’s products and services was new (questions AS3 and AS4) and the priority which the venture placed on R&D (question AS5) were significant predictors of whether the venture had achieved initial sales revenues or not (question AE13). • While the newness of production technology was not significant as a predictor, R&D priority was significant (Wald = 7.583, P < 0.006; B = -0.103, Exp (B) = 0.902). • While R&D was predictive of the achievement of sales revenues, the results indicate that firms for whom R&D was a priority were less likely to have achieved initial sales revenues, rather than more likely. • These results fail to provide support for hypothesis 1.

  12. Results – Hypothesis 2a • To test hypothesis 2, I examined whether the newness of a venture’s products and services to its target customers (question AS1) was a significant predictor of whether the venture had achieved initial sales revenues or not (question AE13). • This relationship was insignificant, failing to provide support for hypothesis 2a.

  13. Results – Hypothesis 2b • To test hypothesis 3, I examined whether the lack of competitors offering products and services similar to the venture (question AS2) was a significant predictor of whether the venture had achieved initial sales revenues or not (question AE13). • This relationship was highly significant (Wald = 24.522, P < 0.001; B = .147, Exp (B) = 1.158), and indicated that ventures with less competition were more likely to have achieved initial sales revenues than those with more competition. • These results provide support for hypothesis 2b.

  14. Post-Hoc Analysis • The above-mentioned results may indicate that innovative products have a longer return-on-investment horizon. • Given this fact, I also performed logistic regression analysis of R&D investment from wave A of the PSED 2 data set as a predictor for whether a firm had achieved initial sales revenues in successive longitudinal waves of the data set collected from the same firms in the four years following collection of the wave A data. The variables analyzed included: • The priority which the venture placed on R&D in year one of the data set (question AS5). • Achievement of sales revenues in successive longitudinal waves of the data set (questions BE13, CE13, DE13, and EE13).

  15. Post-Hoc Analysis • As stated above, I conducted post-hoc analysis of the data to see whether R&D priority in wave A of the data set (question AS5) was a significant predictor of achievement of sales revenues in successive longitudinal waves of the data set (questions BE13, CE13, DE13, and EE13). • The relationship was also significant for waves C and D of the data set, and the relationship remained negative, indicating that the aforementioned return-on-investment horizon may be, at the least, greater than four years.

  16. Summary • The results in this paper may indicate that scholars, practitioners, and policy-makers alike could have a greater impact on short-term value creation in the economy by focusing on the competitive positioning of nascent ventures, rather than on the innovativeness of these ventures’ products and services.

  17. Next Steps • Explore literature on innovation and market orientation in greater depth. • Get up to speed on PSED2 data set. • Position paper more in terms of nascent venture decision-making in response to failure. • Examine family business-specific contextual factors.

  18. Questions & Suggestions?

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