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Resource interdependence and successful exit: A configurational perspective on young technology firms

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New firms’ early resource portfolios are powerful determinants of their future success. No theory exists, however, to predict if or how the combinations of these resources affect young technology ventures’ abilities to achieve a successful exit—an outcome important to founders and early investors.

Image courtesy of interviewee. December 19, 2023

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This video video discusses the complexities and challenges faced by entrepreneurs today, emphasizing how research is evolving to understand these dynamics better. The authors aim to explore the multifaceted interactions between entrepreneurial contexts, resources, and exit strategies (successful outcomes), leading to a more nuanced understanding of these factors rather than a simplistic approach.

The research highlights two key methodologies: examining "exit" as a significant outcome and analyzing "configurations" of resources. It suggests that positive outcomes can emerge from various configurations of resources and contexts, offering a message of hope to entrepreneurs. The paper illustrates how differing levels of various resources (e.g., financial vs. social capital) can lead to successful exits, indicating that there are multiple paths to success.

The findings also reveal "equifinality," suggesting that multiple configurations can lead to similar outcomes, thus broadening the potential avenues for entrepreneurial success. Additionally, the authors introduce the concept of "asymmetric causality," positing that factors leading to success differ qualitatively from those leading to failure, which opens up new theoretical avenues for research.

In conclusion, the text encourages further exploration into how entrepreneurs can configure their unique resources for success and stresses that while the road to entrepreneurship is challenging, there are diverse strategies available to navigate this landscape.

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X-TIMESTAMP-MAP:LOCAL=00:00:00.000,MPEGTS=900000

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The complexity of the, the world

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that the entrepreneur is facing

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and, research, academic research, trying to catch up

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with that, that reality.

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We often decompose the reality that the entrepreneur faces

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into bite sizes, that advance knowledge

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and incremental ways, and there's value there.

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But as we sat, the author team sat,

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we were talking about the realities that they face and,

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and these complex interactions of context and resources

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and exit being a successful, outcome

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for many entrepreneurs, to which we knew less about these

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complex interactions.

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So that's the, that's the directionality that,

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that pushed our research.

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So 2, 2, 2 ways.

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Uh, first exit, so, so exit can be thought of

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as a positive outcome

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because there are successful exits like merger acquisitions

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or IPO from exiting the, the stance

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of a public or a private firm.

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There are loss too. There's bankruptcy, et cetera.

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And, and so exit is, is often,

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talked about in one side

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or the other instead of more of a holistic approach.

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We try to advance our work there,

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and the methodology that we'll get talking about here in a

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few moments is really impactful to addressing

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different outcomes because of its treatment

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of asymmetric causality.

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Then when we're talking about configurations, so,

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so a configuration is constellation

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of different factors coming together.

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And, and most of our methodologies don't want to

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consider these complex interactions.

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They're computationally expensive, theoretically challenging

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to understand a priority.

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So, we, we advanced that approach

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as well in the literature.

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Now, it really was born in, some,

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some literature called the resource-based view, which argues

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that special resources

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that a Affirm controls will differentiate

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their performance outcomes.

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And it then lists different qualities of these resources,

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which are then empirically reflected and then modeled.

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Again, this is idiosyncratic resource variance

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that is independent of all others,

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but as we know, affirm an organization is this not a list

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of ingredients, but it's the batter

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that's been mixed together and then put into an oven

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and baked, and that's where some of the magic happens.

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So we got into, medical devices as our,

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as our empirical sample.

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Why medical devices? Well,

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we have really clear exits for many of these firms.

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There's a lot of flow in this sector of, of smaller startups

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that are then either purchase, go public or fail.

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It's a high risk game. So there's a big flow in, there is,

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a flow out and,

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and it's, it's a lot, there's a lot of data around and,

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and around this sector, that's one.

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Number two, we have a fairly good literature

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around medical device

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and innovation that talks about what resources

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and what environmental contexts matter.

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So we weren't flying blind,

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and in fact, the methods

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that we'll talk about here in a moment further, further,

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it's a mid-range qualitative approach

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that marries in quantitative analyses,

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but it's not flying blind.

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It is informed by theory.

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So we are not exploring like random

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and trying to find patterns.

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We're using theoretical knowledge to direct our attention,

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identify factors of importance, measure those factors,

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then allowing the computer to do some work in terms of

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evaluating different configurations of those factors

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to which we then reevaluate the computer output, again,

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through the lens of theory.

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So it's a nice, approach.

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A lot of, big n methodologies in today's world are

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kind of a theoretical.

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That's what we hear. You know,

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when you're talking about Pilates algorithms,

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we don't really know what's going on,

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but some of the good's coming out predictably,

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that's not the, the QCA approach that we use in this paper.

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It is very much theory driven,

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coupling together computational power to look at, a,

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a myriad of configurations

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and then back to theory to understand and interpret.

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So it's a, it's a mid ground range of methodology.

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I think it has great application

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where you understand what's going on.

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It's theory derived.

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So it's not just random great outcomes that you might get

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with algorithmic searches,

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but it's not as limited as to basic

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ordinarily squared regression,

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which is looking at individual variants

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of the factors included in the models.

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We can talk about the findings in,

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in a couple different ways.

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What I'd like to do is not go down one path.

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One path is looking at each configuration

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and talking about it individually.

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The paper does a great job on that.

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And what I wanna do instead is talk about

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what this paper does and the methodology and our results

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and our findings tell us in a more general sense.

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So number one, we find that,

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there is equ finality, meaning there are many ways

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to a good outcome or an outcome that that's important.

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Number two, we do see a limited set

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of configurations that do lead to these positive outcomes,

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and that's really important.

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And why it's important is not that there is a configuration,

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but there are multiple configurations that are

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not equivalent, but reach a threshold of, of non-trivial,

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important paths that, that an entrepreneur can follow

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In our configurations, we have resources

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that the firm controls and we have context

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of the firm finds itself within, so

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that we find multiple configurations to positive outcomes.

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Is, is by itself an important result.

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The entrepreneur has a lot more avenues

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to success than prior theory might've suggested.

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Number two, when you look at timeframes,

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we can in sense substitute a,

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the entrepreneur can substitute our results,

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will suggest the entrepreneur can substitute a longer

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timeframe for some of these challenging resources

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that would be required in some of our configurations.

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So it, it's provides a message of hope to the entrepreneur.

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The job's not easy and never will be easy,

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but to think you have to have a specific set of resources

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or a individual resource is incorrect.

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To think that we can't have a substitute effect,

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like I have more social capital

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and you have more financial capital, both can be effective.

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Uh, and then another broad

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swath here is I can take more time to my exit

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and still reach a positive exit rather than having

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to set up a very, very challenging, configuration.

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Meaning let's say in essence a lot of money, a lot

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of great knowledge, a lot of incredibly important

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high status relationships in a very magnificent

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or resource rich and, deal environment.

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Well, well, no kidding in some sense that, that

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that extreme positive exists in the configurations

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as theory would suggest

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and probably wouldn't be much of a published paper if

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that's all we found, but that these other less,

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advantaged resource sets can create.

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Exit is important.

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So now why I don't really wanna go down the path

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of each particular configuration.

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When we look at configurations, there is a constraint,

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and that constraint can be the timeframe

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that we're finding ourselves studying.

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So it may not be the case that each configuration

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that we identify and theoretically discuss

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is relevant in every context

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of entrepreneur can find themselves.

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So I want to take these, these,

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these specific configurations.

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I think there's six and specify, Hey, listen, read 'em,

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understand them, and let's, we need more research,

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other researchers

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to extend when these might be applicable in

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different external environments.

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We address a few, one in particular, contextual, factor,

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which is important, but there's much more.

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So what I don't wanna do is oversell these

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results or undersell them.

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They are what they are. They advance our understanding.

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They have a really, a strong message of hope.

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There are multiple paths to success,

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but I don't wanna say that these are the rules to riches.

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They are not rules to riches.

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They are in these environments for this sector.

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Uh, increased probability of successful outcome QCA

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or this mid-range qualitative approach, to,

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to exploring configurations is a powerful methodology.

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And it, it is being

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and has been applied to numerous settings in,

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in social science and in management

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and economic business context.

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More specifically, I would encourage them my

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fellow economics to continue that.

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Uh, there are two factors that are really,

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really powerful in this methodology.

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One, I already mentioned ality.

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There are multiple paths to success.

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And then asymmetric causality, meaning what drives success,

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let's say a lot of this drives success

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and a lot of little of that is not

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necessarily gonna drive failure.

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Asymmetric causality, meaning what might drive failure,

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is absolutely and qualitatively different than

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what drives success.

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That is a really fascinating concept to add

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to your theoretical, portfolio.

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What causes negative outcomes is not just less of the

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what causes positive outcomes, which in our most

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of our empirical models is implied.

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Uh, we may not talk about low levels producing outcomes

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of less desirability,

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but that's really, that linear causality is, is present.

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Asymmetric causality is really kind of blows your mind.

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And that a whole new set of causal factors

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or configuration, if we want to think

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of it in configurational form, are qualitatively different

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for the failure than there is for success.

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So that now opens up whole new ideas

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and re reams, realms of, of, of theoretical questions

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that are relevant that can promote both a theoretical

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extension of knowledge as well as practical.

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And then to the practical, the practitioner, the practicing,

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entrepreneur, really, you know, there's a lot

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of treatment of resources and firm outcomes.

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There's a lot of treatment of things like how you might

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accumulate, resources from community

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and from other, resource providers.

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And that's great information.

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What, what this would tell us,

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what this research would tell us is the limitations

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to your resource acquisition, how you gain resources

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to the firm I is impactful,

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but that there are multiple paths.

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So if your portfolio

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of resources are different than my portfolio versus is

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different than another person's portfolio of resources,

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you really need to be at that portfolio level

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and start thinking about how do I configure these

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resources towards success?

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Uh, I and i, I, not

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that people wanna read an academically oriented research

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paper, but jumping into this paper

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might provide some insight of, my goodness,

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As we discuss different configurations,

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it might open up eyes

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and thoughts to how you might conceive of the act

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of practicing entrepreneur might conceive of how to,

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to inter act, interweave their resources together

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as a holistic configuration towards success.

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