Resources, Supplier Investment, Product Launch Advantages, and First Product Performance

Successfully launching its first product is critical to a new venture's continued success, yet the new venture has relatively few financial or human resources to support its marketing or R&D activities. It is thus important for the new venture to attract funding from external investors such as suppliers. Although the operations management (OM) literature addresses product development and supplier involvement in large firms, few studies have examined the relationship between suppliers and new ventures. This study examines how new ventures can complement their resources and experience with supplier investment, to build positional advantages for their first product and increase marketplace performance. We integrate the OM and entrepreneurship literatures to develop a model based on the resource-based view of the firm, in which the new venture uses external and internal resources to achieve positional advantages of product innovativeness, supplier involvement in production, and product launch quality. We also investigate how market potential moderates the relationship between positional advantages and performance. We empirically test our model using data from 711 new ventures. We find that it is beneficial for a new venture to involve suppliers in production of the first product, and that market potential positively moderates the relationship of product launch quality and performance. However, the results reported here also reveal several surprising results challenging traditional views. Developing a highly innovative first product is much less, not more, important than achieving a high quality first-product launch. Increasing product innovativeness does not necessarily lead to high product performance for new ventures. For a small market with low growth potential, product innovativeness has a negative, not positive, effect on first product performance. We discuss managerial implications of our findings