An effectual approach to innovation for new ventures: The role of entrepreneur’s prior start-up experience

Abstract

ABSTRACT Evidence suggests that ventures often constitute sources of innovation despite their newness and smallness. Such firms are rarely able to invest in formalized processes, following instead alternative pathways to generate innovation. In this study, we suggest that new ventures may proceed with innovation by engaging in effectuation processes. Specifically, we posit that experimentation, affordable loss, flexibility and pre-commitments are positively related to new venture innovation. We also argue that entrepreneur's prior start-up experience positively moderates these relationships. With the exception of pre-commitments, our findings support our hypotheses. The study provides new understanding into the longstanding question of how new ventures faced with important resource constraints and high degrees of uncertainty manage to innovate. Practice-wise, it highlights the ways through which new ventures may be related to innovation outcomes, indicating that those willing to enhance innovation should adopt an effectual logic.