The net effect: the impact of entrepreneurial alliances networks on new venture performance

Abstract

The economic impact of successful new venture performance is undeniable; however, most empirical research examining the factors driving the successful growth of entrepreneurial businesses has focused on established firms with existing capital resources and market presence. Using the Kauffman Firm Survey data (the largest-ever longitudinal study of new ventures), this study analyzes a sample of 1757 U.S.-based new ventures (all founded in 2004), over a seven-year period and provides important insights into the interrelationships between the background of the entrepreneur, start-up team size, and the nature and intensity of alliance networks on financial performance (revenue and profits). This study illustrates the wide variation in new venture performance and the disproportionate economic importance of a relatively small number of high-performance businesses. While entrepreneurial background showed some impact on performance, the results were not conclusive; however, the importance of initial team size (number of founders) was shown to be an important driver of growth and long-term business profitability. Although the success of high-performance ventures was not shown to be mediated by industry type or location, there appears to be a positive “net effect” that exists when companies form alliances that provide them with access to important resources that are often inherently lacking in early stage businesses. This study demonstrates an inverse U-shaped relationship between the number of alliances formed and financial performance, suggesting that entrepreneurs need to focus on forming a selective number of high-quality alliances that will have strategic value for the enterprise.