Early development of new ventures : the role of capabilities in overcoming the liabilities of newness and foreignness

Abstract

This dissertation studies the early development of new ventures and the role of capabilities in overcoming the liabilities of foreignness and newness in these ventures. Motivating my research is the belief that the creation and configuration of capabilities by the entrepreneur is critical for economic success, both for new ventures and society. Organisational capabilities are a key driver in explaining differences in firm performance. However, an important question that remains is whether capability development differs between young and established firms. New ventures, which are typically resource constrained, need to overcome the legitimacy challenges of entering a new market. While prior research has examined capability development in established firms, it has largely ignored the context of new ventures. To address this gap, I investigate the role of capabilities in overcoming the liabilities of newness and foreignness in the context of new ventures. The empirical context used in this study provides an interesting window on the early development of capabilities in new ventures. I use a longitudinal dataset of 4 928 new ventures tracked over their first seven years of existence. I study three different aspects of capability development in new ventures. In the second chapter I examine the role of new ventures' business model in overcoming the liability of foreignness. In the third chapter I investigate the performance effects of aligning human capital investments with capability deploying decisions. In the fourth chapter I examine new venture resource allocation into the development of key capabilities and I test the effect of the resulting capability configurations on survival.Results show that new ventures' capabilities can be a major driver of entrepreneurial performance when they are configured effectively. Finally, I highlight the crucial role of the entrepreneur in developing, configuring and orchestrating the various elements of the business enterprise.