A New Venture's Optimal Entry Time

Posted: 28 Oct 2009

See all articles by Moren Levesque

Moren Levesque

University of Waterloo

Dean Shepherd

University of Colorado at Boulder - Department of Management

Date Written: 2002

Abstract

A general assumption is that early entry into themarket with a new venture is advantageous, increasing the profit potential.However, empirical research suggests that pioneers have a greater risk offailure than later entrants. A model is proposed of the entry timing decision that depends both onenvironmental volatility and competitive rivalry. The approach isdecision-theoretic; it identifies when a decision-maker will benefit most fromstarting an activity rather than delaying it for one more period. The modelconsiders the trade-off between profit potential and mortality risk, as well asother factors encouraging the new venture to enter the market. It offers asimple optimal entry rule based on combinations of values for environmentalvolatility and competitive rivalry, which defines an entry decision threshold:the likelihood of earlier entry for the new venture should increase when thereis an increase in the environmental volatility initially faced by thepioneer. The performance-maximizing time to enter the market is described, and it isdemonstrated how the entry time is affected by changes in the businessenvironment. The time-based criteria are translated into environmental terms,and it is suggested that management set a target environmental level to be metbefore entering the market. The target should be adjusted over time in order tomeet the changes in the business context. The model's theoretical insights aretranslated into testable propositions, and recommendations are made for futureresearch.(LMH)

Keywords: Competitive advantages, Earnings, First-mover advantage, Market entry, Market risks, Market volatility, Mortality risks, Strategic planning

Suggested Citation

Levesque, Moren and Shepherd, Dean, A New Venture's Optimal Entry Time (2002). European Journal of Operational Research, Vol. 139, Issue 3, p. 626-642 2002. Available at SSRN: https://ssrn.com/abstract=1495485

Moren Levesque (Contact Author)

University of Waterloo ( email )

Waterloo, Ontario N2L 3G1
Canada

Dean Shepherd

University of Colorado at Boulder - Department of Management ( email )

Boulder, CO 80309-0419
United States
303-492-5962 (Fax)

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