Environments and Strategies of Organization Start-Up: Effects on Early Survival

Abstract

Examines both the separate and combined impact of environmental conditions (e.g., resource availability and competitive concentration) and organizational strategies (e.g., market breadth and market aggressiveness) on the probability of startup survival in the computer industry. It is hypothesized that young firms have a higher likelihood of survival when demand is increasing, competitive concentration is declining, they are specialist rather than generalist organizations, and they are aggressive rather than efficient organizations. It is also hypothesized that when demand is increasing and concentration is declining, startups that are generalist organizations will have a higher likelihood of survival than specialist organizations and that when demand is declining and concentration is increasing, young firms that are efficient organizations will have a higher likelihood of survival than aggressive organizations. Data were gathered from the 10-Ks and annual reports of 108 minicomputer producers in the United States founded between 1957 and 1981. Based on the criteria used to classify these 108 firms, only 44 survived through 1981 and 64 were coded as failures. Results indicate that market demand, both by itself and when interacting with strategy variables, is the primary environmental influence on the probability that startups will survive. It was also determined that when unit sales increase, specialist organizations are more likely to survive as startups than generalist organizations. In addition, aggressive startup firms are shown to have a greater survival chance than efficient startup firms. In addition, when sales are increasing, generalist strategies rather than specialist strategies do improve the likelihood of new firm survival. Finally, when sales are declining, more efficient organizations survive while more aggressive firms do not. (SFL)