Optimistic entrepreneurs and new product introductions in high technology industries

Abstract

This study examines how the relationship between past performance and new product introductions is influenced by entrepreneurial optimism. Based on the behavioral theory of the firm, we test how past performance suggest low performance relative to aspirations helps new ventures initiate strategic change, such as new product introductions. In contrast, high performance relative to aspirations tends to reinforce status quo. Moreover, we argue that when past performance falls below aspirations, new ventures founded by optimistic entrepreneurs are more likely to introduce new products than those with less optimistic entrepreneurs. We test our hypotheses using data from the Kauffman Firm Survey on 333 newly founded high technology new ventures in the U.S. Our results strongly support our interaction hypothesis. After controlling for the impact of several entrepreneurial and firm-level characteristics, we show that the rate of new product introductions is highest in ventures founded by optimistic entrepreneurs where the ventures have shown low prior performance relative to their aspirations.