On Babson College Week: Starting a new company has many pitfalls.
Jennifer Bailey, assistant professor of technology and operations management at Babson College, examines how resource management can be key to keeping companies alive.
Jennifer Bailey is an Assistant of Technology and Operations Management. Her areas of expertise and interest include operations management, innovation management, organizational learning and entrepreneurship. In particular, her research focuses on how innovative and entrepreneurial firms manage risk and uncertainty. For innovative firms, her current research examines the innovation development process to identify effective strategies which firms can employ in order to maximize the likelihood of generating innovation breakthroughs, while mitigating innovation risks and leveraging opportunities for learning from failure. Jennifer was the recipient of the 2015 Best Paper Award at the Product Development and Management Association (PDMA) conference for her research on innovation management. For entrepreneurial firms, her research explores effective strategies which can be employed to mitigate the operational risks and challenges faced by start-up ventures.
Jennifer is the Faculty Advisor for the Babson Operations Club and the Faculty Advisor for the Technology, Entrepreneurship and Design (TED) Concentration. She currently teaches Operations Management (SME 2002) and Operations for Entrepreneurs (MOB 3503), as well as Integrated Product Design (MOB 3578) – which is a collaborative business/engineering/design course co-taught by faculty from three colleges: Babson College, Olin College of Engineering and Massachusetts College of Art and Design.
Managing Resources & Mitigating Risk in Entrepreneurial Firms
It has been estimated that 20% of companies fail before their first year anniversary, while 50% off all companies fail before their fifth year in operation, and only 30% of companies survive beyond the ten-year mark.
Two issues which frequently top the list of risks factors for startups are: (1) launch delays and (2) failure to achieve profitability. Importantly, the accomplishment of these milestones depend on the efficient acquisition and deployment of a startup’s tangible resources including the purchasing of raw materials, the hiring of employees, and investment in facilities and equipment. However, while many entrepreneurial studies have examined the impact of access to financial resources and social capital resources, the impact of access to tangible resources on startup performance is an understudied topic.
In my research, I utilize a longitudinal study to examine how efficient resource management can impact a startup’s ability to accomplish these two milestones. The results show that the acquisition of raw materials is most important to accelerate time to launch, whereas the acquisition of facilities and human resources is most critical to accelerate time to profitability. Materials are an essential input as the startup moves from concept to commercialization. On the other hand, early access to equipment resources and human resources improves the startup’s revenue generating efficiency, as a result of learning curve effects, which enables the startup to quickly recoup related fixed costs and accelerates the path to profitability. Prior research has assumed homogeneity of a firm’s tangible resources. This research highlights the various resource acquisition tradeoffs which can occur as result of the heterogeneous properties demonstrated by each type of tangible resource, each of which contributes differently to the achievement of a startup’s milestones. These research findings generate practical guidance to entrepreneurs on how to effectively manage these resource investment tradeoffs to achieve a faster launch and earlier profitability and to minimize startup risk.