CHALLENGES IN PREDICTING NEW FIRM PERFORMANCE

Research examining predictors of new firm performance is clearly of in terest to entrepreneurs and to those who provide advice and funds for their ventures.A growing body of research has examined the influence u pon performance of such variables as entrepreneurs' characteristics, p rocesses of founding, venture attributes, and environmental characteri stics. However, considered as a whole, this research has shown mixed r esults and limited findings to date. This paper considers some of the challenges that arise in attempting to predict new firm performance. A key factor is the heavy dependence of new ventures upon environmental developments, many of which may be very difficult to predict. All fir ms are impacted by the environment, but new ventures have a concentrat ion of risk upon a few products or services, narrow markets, and a few key resources. Thus, well-conceived ventures can fail because of unfo reseen environmental shocks and the lack of ''deep pockets'' to ride o ut hard times. These same factors can cause new firm performance to sw ing widely, confounding attempts to identify predictors of good or poo r performance. There are also challenges because many entrepreneurs pu rsue personal goals, some of which are noneconomic in nature. Thus, de cisions about whether to found ventures, about how vigorously to grow them, or about whether or not to close down marginal businesses are al l influenced by the personal values of entrepreneurs. The diversity of ventures, encompassing firms that differ greatly in scale and potenti al, complicates the task of determining predictors of performance. It may be that the influence of a particular variable, such as management experience, varies by type of venture. Previous research has also use d a variety of performance measures, making comparisons across studies more difficult. Little has been done to determine whether the factors that enhance one measure of performance, such as survival, are the sa me as those that lead to others, such as growth or profitability. Prev ious research has been hampered by inadequate theoretical frameworks a nd, in some cases, by inappropriate methods of analysis. In addition, past research often could have been characterized by a tendency to exa mine variables that were easy to study, rather than those that were im portant. Despite limited success to date, we should not forsake resear ch on predictors of new venture performance. The challenges discussed probably put limits on our ability to predict performance of individua l ventures. However, the field of study is young and there is much tha t can be done to add to our understanding. The paper then develops rec ommendations for future research, noting that each of the challenges c onsidered raises specific research opportunities.