Exploration-exploitation and acquisition likelihood in new ventures.
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| Authors: | Keyhani, Mohammad1 (AUTHOR) mohammad.keyhani@haskayne.ucalgary.ca, Deutsch, Yuval2 (AUTHOR), Madhok, Anoop2 (AUTHOR), Lévesque, Moren2 (AUTHOR) |
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| Source: | Small Business Economics. Mar2022, Vol. 58 Issue 3, p1475-1496. 22p. 1 Diagram, 10 Charts, 6 Graphs. |
| Subject Terms: | *Research & development, *New business enterprises, *Sale of business enterprises, *Profitability |
| Abstract: | The market for acquisitions has been a blind spot in exploration-exploitation research in the new venture context. The introduction of the acquisition exit outcome as a performance dimension for new ventures, especially among high-tech ventures, shifts the traditional temporal logic of exploration-exploitation theory by introducing previously unacknowledged short-term benefits of exploration. We bring the acquisition outcome into the picture and investigate the relationship between the exploration-exploitation continuum and profitability, survival, and acquisition likelihood simultaneously. Using the Kauffman Firm Survey data, we provide evidence for a link between exploration and the likelihood of acquisition (defined as the business being sold to or merged with another business), although industry technology level poses a boundary condition such that the association is not observed in low- and medium-technology firms. An inverse U-shaped relationship that is monotone negative for most of the data range was found between exploration and the profitability of low- and medium-tech firms, and a negatively linear relationship was found for exploration and the profitability of high-tech firms. Our findings lend some support to the viability of "born to flip" strategies involving comparatively higher exploration levels in high-tech start-ups and sacrifice of short-term profitability. Plain English Summary Built-to-flip strategy really does work, but only for some startups. There has been a debate on whether start-ups should be managed specifically with the aim of short-term exit through M&As (built to flip) or if they should always focus on long-term viability (built to last). We tap into the Kauffman Firm Survey data to provide evidence-based insights on this issue. Our results support the viability of "built-to-flip" strategies among some new firms at least when it comes to the balance of exploration and exploitation, measured as relative allocation of employees to R&D vs. sales. High-tech ventures that exited through M&A had higher exploration levels compared to all other sub-groups including high-tech ventures that closed or did not exit, and all low- and medium-tech ventures. Among high-tech ventures, increased exploration does—to a point—lead to a higher likelihood of acquisition, but it comes at the price of reduced profitability. After this peak point, further increase in exploration reduces both acquisition likelihood and profitability. [ABSTRACT FROM AUTHOR] |
| Database: | Entrepreneurial Studies Source |
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| Header | DbId: ent DbLabel: Entrepreneurial Studies Source An: 155179714 AccessLevel: 6 PubType: Academic Journal PubTypeId: academicJournal PreciseRelevancyScore: 0 |
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| Items | – Name: Author Label: Authors Group: Au Data: <searchLink fieldCode="AR" term="%22Keyhani%2C+Mohammad%22">Keyhani, Mohammad</searchLink><relatesTo>1</relatesTo> (AUTHOR)<i> mohammad.keyhani@haskayne.ucalgary.ca</i><br /><searchLink fieldCode="AR" term="%22Deutsch%2C+Yuval%22">Deutsch, Yuval</searchLink><relatesTo>2</relatesTo> (AUTHOR)<br /><searchLink fieldCode="AR" term="%22Madhok%2C+Anoop%22">Madhok, Anoop</searchLink><relatesTo>2</relatesTo> (AUTHOR)<br /><searchLink fieldCode="AR" term="%22Lévesque%2C+Moren%22">Lévesque, Moren</searchLink><relatesTo>2</relatesTo> (AUTHOR) – Name: TitleSource Label: Source Group: Src Data: <searchLink fieldCode="JN" term="%22Small+Business+Economics%22">Small Business Economics</searchLink>. Mar2022, Vol. 58 Issue 3, p1475-1496. 22p. 1 Diagram, 10 Charts, 6 Graphs. – Name: Subject Label: Subject Terms Group: Su Data: *<searchLink fieldCode="DE" term="%22Research+%26+development%22">Research & development</searchLink><br />*<searchLink fieldCode="DE" term="%22New+business+enterprises%22">New business enterprises</searchLink><br />*<searchLink fieldCode="DE" term="%22Sale+of+business+enterprises%22">Sale of business enterprises</searchLink><br />*<searchLink fieldCode="DE" term="%22Profitability%22">Profitability</searchLink> – Name: Abstract Label: Abstract Group: Ab Data: The market for acquisitions has been a blind spot in exploration-exploitation research in the new venture context. The introduction of the acquisition exit outcome as a performance dimension for new ventures, especially among high-tech ventures, shifts the traditional temporal logic of exploration-exploitation theory by introducing previously unacknowledged short-term benefits of exploration. We bring the acquisition outcome into the picture and investigate the relationship between the exploration-exploitation continuum and profitability, survival, and acquisition likelihood simultaneously. Using the Kauffman Firm Survey data, we provide evidence for a link between exploration and the likelihood of acquisition (defined as the business being sold to or merged with another business), although industry technology level poses a boundary condition such that the association is not observed in low- and medium-technology firms. An inverse U-shaped relationship that is monotone negative for most of the data range was found between exploration and the profitability of low- and medium-tech firms, and a negatively linear relationship was found for exploration and the profitability of high-tech firms. Our findings lend some support to the viability of "born to flip" strategies involving comparatively higher exploration levels in high-tech start-ups and sacrifice of short-term profitability. Plain English Summary Built-to-flip strategy really does work, but only for some startups. There has been a debate on whether start-ups should be managed specifically with the aim of short-term exit through M&As (built to flip) or if they should always focus on long-term viability (built to last). We tap into the Kauffman Firm Survey data to provide evidence-based insights on this issue. Our results support the viability of "built-to-flip" strategies among some new firms at least when it comes to the balance of exploration and exploitation, measured as relative allocation of employees to R&D vs. sales. High-tech ventures that exited through M&A had higher exploration levels compared to all other sub-groups including high-tech ventures that closed or did not exit, and all low- and medium-tech ventures. Among high-tech ventures, increased exploration does—to a point—lead to a higher likelihood of acquisition, but it comes at the price of reduced profitability. After this peak point, further increase in exploration reduces both acquisition likelihood and profitability. [ABSTRACT FROM AUTHOR] |
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| RecordInfo | BibRecord: BibEntity: Identifiers: – Type: doi Value: 10.1007/s11187-021-00452-1 Languages: – Code: eng Text: English PhysicalDescription: Pagination: PageCount: 22 StartPage: 1475 Subjects: – SubjectFull: Research & development Type: general – SubjectFull: New business enterprises Type: general – SubjectFull: Sale of business enterprises Type: general – SubjectFull: Profitability Type: general Titles: – TitleFull: Exploration-exploitation and acquisition likelihood in new ventures. Type: main BibRelationships: HasContributorRelationships: – PersonEntity: Name: NameFull: Keyhani, Mohammad – PersonEntity: Name: NameFull: Deutsch, Yuval – PersonEntity: Name: NameFull: Madhok, Anoop – PersonEntity: Name: NameFull: Lévesque, Moren IsPartOfRelationships: – BibEntity: Dates: – D: 01 M: 03 Text: Mar2022 Type: published Y: 2022 Identifiers: – Type: issn-print Value: 0921898X Numbering: – Type: volume Value: 58 – Type: issue Value: 3 Titles: – TitleFull: Small Business Economics Type: main |
| ResultId | 1 |
