Out of the Frying Pan.? Why Small Business Managers Introduce High-Risk Products

Posted: 1 Dec 2009

See all articles by Mark Simon

Mark Simon

Oakland University - School of Business Administration - Dept. of Management and Marketing

Susan M. Houghton

affiliation not provided to SSRN

Sonia Savelli

affiliation not provided to SSRN

Date Written: 2003

Abstract

Managers in small firms often adopt a strategy ofintroducing new products in order to improve a small firm's ailing performance.Prospect theory suggests that individuals tend to take risks if they are in anegative decision context and motivated to seek any opportunity no matter howunrealistic, to improve the situation. Using the prospect theory as ananalytical framework this study seeks to test whether managers who aredissatisfied with the current performance of the firm are more likely tointroduce new products with riskier characteristics. Data from a sample of 135 Georgia-based high technology small firms with 100or fewer employees and which were in the process of introducing a new productinto the market or had just introduced a new product within three months of thestudy, were selected for analysis. Data measured two different variables:characteristics of new products and satisfaction levels of top managers interms of business performance. Results suggest that small business managers with lower initial levels ofsatisfaction pursued greater risk in terms of introducing new products inunfamiliar markets and products that required greater business resources. Oneof the major implications of the findings is that a negative decision contextmay further encourage risky action which, in turn may generate furtherdisappointment, resulting in a potential negative cycle. (VRS)

Keywords: Market entry, Prospect theory, Management decisions, Market entry, Risk orientation, Product development, Firm performance

Suggested Citation

Simon, Mark and Houghton, Susan M. and Savelli, Sonia, Out of the Frying Pan.? Why Small Business Managers Introduce High-Risk Products (2003). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1513129

Mark Simon

Oakland University - School of Business Administration - Dept. of Management and Marketing ( email )

Rochester, MI 48309-4401
United States
248-370-3295 (Phone)

HOME PAGE: http://www.sba.oakland.edu/Faculty/simon/index.htm

Susan M. Houghton

affiliation not provided to SSRN

Sonia Savelli

affiliation not provided to SSRN

No Address Available

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