Abstract
We investigate how different value creation processes affect the early-stage performance of new ventures. Specifically, we focus on entrepreneurial value creation using four different patterns of customer engagement: (1) existing customer acquisition (ECA); (2) product/service imitation (PSI); (3) customer-focused innovation (CFI); and (4) technology-driven innovation (TDI). We examine early-stage performance under the premise that each pattern has a different starting point with customer bases, product innovation, and legitimacy. We use institutional theory, optimal distinctiveness, and the demand-side perspective to hypothesize and then empirically validate this typology by examining the performance rank order of customer engagement patterns. We employ a mixed-methods approach across a two-part study and find support for our hypotheses. We find differential financial performance outcomes that depend on the customer engagement pattern implemented by the entrepreneur. We expand on these findings, including the practical implications of the strategies that entrepreneurs may consider when launching their venture.
Plain English Summary
Start-up companies that engage with customers by acquiring or imitating a proven value proposition are more likely to achieve sales, have faster sales growth, and better profit margins than those that seek to innovate a new value proposition. Our paper identifies four different ways that new ventures engage with customers as they implement their value proposition: (1) they acquire an existing business operation along with its customers, (2) they imitate a value proposition that has already been tested by one or more existing companies, (3) they innovate by engaging with potential customers early to develop products that meet customer-defined needs, and (4) they develop an innovative technology and then set about to educate customers as to what it can do for them. We then look at the performance implications of these customer engagement processes. New ventures that apply a proven value proposition by (1) acquiring an existing business will be the most likely to achieve sales, sales growth, and have higher profit margins in the early stages; followed by (2) imitating a value proposition, (3) innovating by engaging with potential customers, and (4) developing innovative technology, in that order.
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Notes
DeTienne and Chandler (2007) answered a different research question. They used the customer engagement pattern typology to show opportunity recognition differences between men and women. In contrast, in the current study, we show how different customer engagement patterns are related to subsequent early-stage sales and profitability.
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Chandler, G.N., McLeod, M.S., Broberg, J.C. et al. Customer engagement patterns and new venture outcomes. Small Bus Econ (2023). https://doi.org/10.1007/s11187-023-00843-6
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DOI: https://doi.org/10.1007/s11187-023-00843-6
Keywords
- Customer engagement
- Demand-side
- Institutional theory
- Legitimacy
- Optimal distinctiveness
- New ventures
- Value creation