Isolating the Performance Implications of New Venture Status

Abstract

New ventures are unique to established firms in various meaningful ways, but the performance implications of the new venture status per se have remained ambiguous. To bridge this literature gap, this paper develops and verifies three theories on the linkage between new venture status and firm performance, namely competitive vulnerability, resource scarcity, and strategic flexibility. The first two theories posit an adverse effect of new venture status, which is contingent respectively on business differentiation and resource endowment. The third theory highlights a positive influence of new venture status, which is more pronounced for firms with weaker dynamic capabilities. Evidence from a sample of new and established firms in China shows that the direct effect of new venture status is negative but insignificant. Neither business differentiation nor dynamic capabilities moderates the relationship. However, low resource endowment reinforces the negative influence of new venture status. The findings, therefore, position resource scarcity as the pathway new venture status shapes firm performance rather than competitive vulnerability or strategic flexibility. Our nuanced, synthetic analysis clarifies the confusion as to whether and how newness is good or bad while generating useful implications for the creation and management of startups.