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Julia Prats
DBA in Management

Dissertation Chair: Prof. A. Nanda

Sustaining Superior Performance through an Entrepreneurial Boom and Bust: Inter-Firm Differences in the e-Consulting Industry (1997-2001) and the Investment Management Industry (1927-1931)

This study explores the effect of strategic patterns and resource combinations on new-venture survival during an Entrepreneurial Boom and Bust (EBB) period. An EBB is a period of rapid expansion of an industry in terms of number of players, fueled by expectations of high returns (and consequently a considerable infusion of resources), followed by a sudden change in industry prospects (and consequently the reallocation of those resources). The result is that a large proportion of new business organizations fail shortly after being formed.

Although considerable research has been conducted at the industry level as to why the boom-and-bust phenomenon exists, we do not yet understand the basic mechanisms by which some firms deal successfully with such an acute environmental shift while others fail. An in-depth study of 104 e-consulting firms from 1997 to 2001, and 85 investment management firms from 1927 to 1931, combining a vast array of data sources and analytical tools-archival and interview-based data, cluster analysis, multilogit models, probit regression models-yields ground-breaking insights on new-venture strategies at industry inception, and the effects of the strategies and of initial endowments on venture success.

First, the study identifies a typology of successful new-venture entry strategies. In the context of the e-consulting industry, we find that firms followed four strategy archetypes-Conservative Growers, Focused Consultants, Expansionists, and Aggressive Acquirers. Further, differences in strategic behavior reflect differences in resource endowments and these differences are systematically associated with differences in performance. A parallel analysis of the investment management industry during the 1920s yields strikingly similar results.

Second, the study shows that resource configuration and strategic patterns in both the expansion and decline phase of the industry influence a firm's ability to adapt to the sudden environmental change. Under EBB conditions, limitations to new-venture growth are not outside the firm (lack of resources, demand level) but are internal. Service strategies based on a wider range of services lead to better results, and industry knowledge rather than entrepreneurial experience is crucial to effective leadership of a firm in such turbulent times.

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