On a Short Leash? Young Organizations, Strategic Change, and Venture Capital

Abstract

A vast literature chronicles the struggles of established firms to adapt given environmental change, but few studies have examined whether young organizations are indeed more adaptive than their senior corporate siblings. Firms attempting to commercialize inventions during a period of rapid technological change may need to adapt their strategies as they learn, but established organizations often remain tied to existing paths. Nascent firms less subject to inertia may be better poised to explore various commercialization avenues but are resource-constrained. While external investment may promise to solve the resource problem, might investors reduce a firm’s adaptability? Using a data set chronicling technology commercialization strategies and funding events of all firms in the worldwide automatic speech recognition industry from 1952-2006, I investigate the impact of these factors on young firms and strategic change. Many thanks to Lee Fleming, Josh Lerner, Ramana Nanda, Tom Nicholas, Mary Tripsas, Michael Tushman, Noam Wasserman, and Yanbo Wang for valuable comments. I am grateful to Walt Tetschner of Voice Information Associates and Bill Meisel of TMAA Associates for access to their archives. This work was supported by the Harvard Business School Division of Research. Note: some charts are best viewed in color.