VENTURE SURVIVAL AFTER ENVIRONMENTAL JOLTS

Small new firms are seen as being at a disadvantage relative to their older, larger rivals, and therefore subject to a higher rate of failure, due to liabilities of newness and smallness (Aldrich & Auster, 1986; Bradley & Rubach, 1999; Honjo, 2000a; Shepherd, Douglas, & Shanley, 2000; Stinchcombe, 1965). They may be able to survive and grow in less hostile environments with lower competitive threats (Romanelli, 1989; Stearns,Carter, Reynolds, & Williams, 1995; Tsai, MacMillan, & Low, 1991). But survival differences may become more evident in rapidly changing, highly uncertain environments, according to Hannan and Freeman (1989), who add that most organizations cannot adapt quickly enough in these environments. In the face of environmental jolts, however, firms have very little time to react in order to survive these more sudden, extreme impacts. Environmental jolts are infrequent, but produce high consequences for industry players (Venkataraman & Van de Ven, 1998). There are indications these events may be particularly hazardous for newer or smaller firms because they have little ‘slack’to withstand these unexpected, uncontrollable jolts (Cooper, 1995; Low & MacMillan, 1988; Woo, Daellenbach, & Nicholls-Nixon, 1994). Korea experienced a major jolt with its financial crisis of 1997. This crisis caused severe economic difficulties for Korean firms and led many into bankruptcy. Our research examines the survival or failure of 115 Korean technology-based small and medium enterprises (SMEs) after this jolt. We explore whether it is simply a matter of age and size, or the possession of certain resources, that can explain the ability for ventures to withstand these shocks. We proceed as follows. We start with background on environmental jolts and the Korean Financial Crisis. Next, we draw from the entrepreneurship literature and theoretical perspectives, primarily liabilities of newness and the resource-based view of the firm, to develop hypotheses about age and size, and sources of buffers, and their association with survival or failure in the face of environmental jolts. We then describe our research sample and method, followed by a discussion of our results and conclusions. Our research makes the following contributions to the literature. First, we examine factors enabling a newer, smaller firm to withstand environmental jolts. While there is greater understanding about how entrepreneurial organizations survive and grow through evolutionary processes and incremental adaptation, we believe there is value in understanding how these firms can buffer themselves against the hazards of unanticipated discontinuous shifts in their environments. Second, we combine concepts from the liability of newness and smallness perspective with the resource-based view to add more depth of understanding about the underlying sources of survival or failure in new firms.