Strategic choice and new ventures : a longitudinal examination of the performance implications of initial strategic decisions and changes in strategic decisions

This study examines the apparent importance of strategic decisions for new ventures despite the mixed theoretical and empirical findings regarding the impact and timing of those decisions. As has been pointed out in past research, the most precarious and formative part of organizational life occurs at its founding and yet our knowledge of the relationships between strategic decisions and subsequent firm performance remains unresolved. The strategic choice perspective is examined as it places proactive control for the venture in the hands of the management team and further suggests that these decisions have performance consequences. This study examines two issues: 1) Do Strategic Decisions matter? and 2) When do Strategic Decisions matter?. A database of over 500 new, independent banks formed in the United States between 1985 and 1988 was developed with the assistance of the U.S. Office of the Comptroller of the Currency as well as secondary data sources from the Federal Reserve, Federal Deposit Insurance Corporation, U.S. Census Bureau, and the Polk's Bank Directory. Combining data from all of these sources provided the opportunity to examine the impact of strategic decisions (as a group) upon the growth of new banks. The result of this analysis includes additional validation of the strategic choice model and specifically its application to new ventures. The strategic decisions of new, independent ventures were found to significantly affect the performance of the venture. This was especially true for the initial decisions of the firm which appears to be the point of maximum opportunity to observe strategic choice. Further analysis of the oft-mentioned broad/aggressive product approach for new venture success was examined. This study found that in highly munificent markets, the importance of a broad breadth approach is much less important than in less munificent markets. For this group of ventures, a broad breadth approach is more important as the munificence of the environment decreases. The value of the broad breadth approach also appears to be highly dependent upon the level of initial capital. It appears that utilizing a broad breadth approach is most important in the presence of lower levels of initial capital.