Optimal Project Rejection and New Firm Start-Ups

Posted: 10 Nov 2009

See all articles by Masako Ueda

Masako Ueda

University of Wisconsin, Madison - School of Business; Centre for Economic Policy Research (CEPR)

Bruno Cassiman

IESE Business School; KU Leuven - Faculty of Business and Economics (FEB)

Multiple version iconThere are 2 versions of this paper

Date Written: 2006

Abstract

The goal of this study is to discover why startups aremuch more likely than established firms to commercialize innovations. There arethree possible alternatives regarding the fate of an innovation: it can becommercialized by an incumbent firm as an internal venture, commercialized by astartup as an external venture, or not commercialized at all. A model thatpredicts how internal ventures differ from external ventures is developed andused to generate several propositions, the most important of which predictsthat innovations commercialized through internal ventures are likely to be agood fit with established firms' internal resources. Other propositions suggestthat internal ventures are likely to cannibalize the established firm'sexisting businesses and be less profitable than innovations commercializedthrough external ventures. A survey of existing industrial organizationliterature is used to evaluate the model. The results contradict the literaturebut support the predictions of the model. (SAA)

Keywords: Commercialization, Internal ventures, External ventures, Firm performance, Innovations, Resource management, Startups, Established firms

Suggested Citation

Ueda, Masako and Cassiman, Bruno, Optimal Project Rejection and New Firm Start-Ups (2006). Management Science, Vol. 52, Issue 2, p. 262-275 2006. Available at SSRN: https://ssrn.com/abstract=1503239

Masako Ueda (Contact Author)

University of Wisconsin, Madison - School of Business ( email )

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Centre for Economic Policy Research (CEPR)

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Bruno Cassiman

IESE Business School ( email )

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Spain
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KU Leuven - Faculty of Business and Economics (FEB) ( email )

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