The evolution of new technology ventures over 20 years: Patterns of failure, merger, and survival

Abstract Relatively few studies of entrepreneurs have examined the evolution of business ventures over a long period of time. This paper summarizes the fate of 250 technology-based companies founded in Northern California during the 1960s. The three outcomes studied are failure, merger, and continued operation. In addition, interviews with a dozen founders of firms that survived the entire 20-year period shed light on the founders' own interpretations of why they succeeded. By 1988, 50% of the firms in the sample had failed, 32% had merged or been acquired, and 18% had survived as independent businesses. There was a steady and occasionally sharp erosion in the number of survivors throughout the period. A striking finding was that fully 78% of the surviving firms in 1988 still had one or more of the original founders in place. Among the factors predicting failure were product/market problems such as product timing difficulties, problems of product design, or inappropriate distribution channels; financial difficulties such as initial undercapitalization or problems with the venture capital relationship; and managerial/key employee problems such as imbalance in the management team or succumbing to the trappings of success. The firms in the data base which were subsequently merged or acquired exhibited a number of macro and micro characteristics. From a macro point of view, the merger/acquisition rates seem to have been lower than the national rate in the late 1960s, higher in the later 1970s, and similar in the 1980s. From a micro point of view, discernible patterns existed among acquired firms, such as size and year since founding. Interviews with surviving founders suggested that relations between founders, banking and credit problems, attempted takeovers, and international expansion were among the key crises that had to be overcome by the surviving firms. Of particular interest was the diversity of motives for founding the business reported by the survivors. In addition to the desire to achieve wealth or to be independent, we heard mentioned loyalty to a product or technology (which would otherwise disappear) and commitment to satisfying a customer group. Also noted were founders who indicated that their career as an entrepreneur came about primarily by accident. Five themes emerging from the interviews were characterized by the surviving founders as business lessons learned: (1) know yourself, (2) love your product, (3) honor your customer, (4) treat your people well, and (5) keep your integrity. The interviews, in conjunction with the data on surviving firms, are useful in expanding our understanding of the type of person that starts a business and why some start-ups succeed over the long term. Particularly noteworthy is the number affirms who survived without ever growing larger. Theories of long-term entrepreneurial success may need to take risk aversion into account.