Built to Last, Flip or Profit? Exploration-Exploitation and the Survival, Acquisition, and Profitability of Start-ups

Abstract

Exploration-exploitation research to date has understudied the issue of multiple performance dimensions and their potential trade-offs, which leaves the application of its theory to the context of start-ups exposed to blind spots. The importance of acquisition likelihood as a performance outcome in the new venture context calls for nuance in the temporal logic of exploration-exploitation theory, because in this context exploration may be associated with short-term rather than only long-term benefits. In this paper for the first time we investigate the relationship between the exploration-exploitation continuum and profitability, survival and acquisition likelihood simultaneously, and investigate potential trade-offs between these performance dimensions. Using the Kauffman Firm Survey dataset, our results support a balance-is-best approach to exploration for the acquisition likelihood and survival likelihood of high-tech start-ups, and for the profitability of low and medium tech start-ups, but the relationship is linearly negative for the profitability of high-tech start-ups and the survival likelihoods of low and medium tech start-ups.

Keywords: exploration-exploitation, startups, acquisitions, entrepreneurship, corporate strategy

JEL Classification: L20, L21, L22, L23, L24, L25, L26, L29, M10, M13, M19