This article theorizes how short-term revenue volatility affects new venture viability and how such volatility develops over time. Tracking the bank accounts of 6,578 new ventures over a 10-year period, we find that, even after controlling for a range of other factors, short-term revenue volatility is a strong predictor of venture exit. Although short-term revenue volatility is associated with the depletion of buffer resources and financial default, surviving ventures do not, on average, decrease their short-term revenue volatility over time. However, short-term revenue volatility decreases at the cohort level due to higher exit rates of volatile ventures.
AhlersG. K.CummingD.GüntherC.SchweizerD. (2015). Signaling in equity crowdfunding. Entrepreneurship Theory and Practice, 39(4), 955–980.doi:10.1111/etap.12157
2.
AldrichH.AusterE. (1986). Even dwarfs started small: Liabilities of age and size and their strategic implications. InStawB.CummingsL. (Eds.), Research in Organizational Behavior (pp.165–198). Greenwich, CT: JAI Press.
AshfordS. J.LeeC.BobkoP. (1989). Content, cause, and consequences of job insecurity: A theory-based measure and substantive test. Academy of Management journal, 32(4), 803–829.
5.
BaldwinJ. R.RafiquzzamanM. (1995). Selection versus evolutionary adaptation: Learning and post-entry performance. International Journal of Industrial Organization, 13(4), 501–522.doi:10.1016/0167-7187(95)00502-1
6.
BaronR. A. (1998). Cognitive mechanisms in entrepreneurship: Why and when entrepreneurs think differently than other people. Journal of Business Venturing, 13(4), 275–294.
7.
BatjargalB.HittM. A.TsuiA. S.ArregleJ. -L.WebbJ. W.MillerT. L. (2013). Institutional Polycentrism, entrepreneurs' social networks, and new venture growth. Academy of Management Journal, 56(4), 1024–1049.doi:10.5465/amj.2010.0095
8.
BaùM.SiegerP.EddlestonK. A.ChiricoF. (2017). Fail but try again? The effects of age, gender, and multiple fail but try again? The effects of age, gender, and multiple-Owner experience on failed entrepreneurs owner experience on failed entrepreneurs’ reentry. Entrepreneurship Theory and Practice, 41(6), 909–941.doi:10.1111/etap.12233
9.
BaumJ. A. C.SinghJ. (1996). Dynamics of organizational responses to competition. Social Forces, 74(4), 1261–1297.doi:10.1093/sf/74.4.1261
10.
BeesleyM. (1955). The birth and death of industrial establishments: Experience in the West Midlands Conurbation. The Journal of Industrial Economics, 4(1), 45–61.doi:10.2307/2097438
11.
BloomN. (2014). Fluctuations in uncertainty. Journal of Economic Perspectives, 28(2), 153–176.doi:10.1257/jep.28.2.153
12.
BoH. (2001). Volatility of sales, expectation errors, and inventory investment: Firm level evidence. International Journal of Production Economics, 72(3), 273–283.doi:10.1016/S0925-5273(00)00160-2
13.
BothamR.GravesA. (2011). Regional variations in new firm job creation: The contribution of high growth start-ups. Local Economy: The Journal of the Local Economy Policy Unit, 26(2), 95–107.doi:10.1177/0269094210397849
14.
BoxM. (2008). The death of firms: Exploring the effects of environment and birth cohort on firm survival in Sweden. Small Business Economics, 31(4), 379–393.doi:10.1007/s11187-007-9061-2
15.
BradleyS. W.AldrichH.ShepherdD. A.WiklundJ. (2011). Resources, environmental change, and survival: Asymmetric paths of young independent and subsidiary organizations. Strategic Management Journal, 32(5), 486–509.doi:10.1002/smj.887
16.
BrownR.LeeN. (2019). Strapped for cash? funding for UK high growth SMEs since the global financial crisis. Journal of Business Research, 99, 37–45.doi:10.1016/j.jbusres.2019.02.001
17.
BrudererE.SinghJ. (1996). Organizational evolution, learning, and selection: A genetic-algorithm-based model. Academy of Management Journal, 39(5), 1322–1349.
18.
BrüderlJ.SchüsslerR. (1990). Organizational mortality: The liabilities of newness and adolescence. Administrative Science Quarterly, 35(3), 530–547.doi:10.2307/2393316
19.
BrutonG.BamfordC. (2016). Entrepreneurship: The Art, Science, and Process for Success (2nd ed.): McGraw-Hill Higher Education.
20.
BruursemaK.KesslerS. R.SpectorP. E. (2011). Bored employees misbehaving: The relationship between boredom and counterproductive work behaviour. Work & Stress, 25(2), 93–107.doi:10.1080/02678373.2011.596670
21.
ChenS.ChenH. (2010). Regression to the mean. InSalkindN. J. (Ed.), Encyclopedia of Research Design (pp.1236–1237). Thousand Oaks, CA: SAGE Publications, Inc.
22.
ChrismanJ. J.McMullanW. E. (2004). Outsider assistance as a knowledge resource for new venture survival. Journal of Small Business Management, 42(3), 229–244.doi:10.1111/j.1540-627X.2004.00109.x
23.
CoadA. (2014). Death is not a success: Reflections on business exit. International Small Business Journal: Researching Entrepreneurship, 32(7), 721–732.doi:10.1177/0266242612475104
CoadA.FrankishJ.RobertsR. G.StoreyD. J. (2013). Growth paths and survival chances: An application of gambler's Ruin theory. Journal of Business Venturing, 28(5), 615–632.doi:10.1016/j.jbusvent.2012.06.002
26.
CoadA.FrankishJ. S.RobertsR. G.StoreyD. J. (2016). Predicting new venture survival and growth: Does the fog lift?Small Business Economics, 47(1), 217–241.doi:10.1007/s11187-016-9713-1
27.
CopeJ. (2005). Toward a dynamic learning perspective of entrepreneurship. Entrepreneurship Theory and Practice, 29(4), 373–397.doi:10.1111/j.1540-6520.2005.00090.x
28.
CovinJ. G.GreenK. M.SlevinD. P. (2006). Strategic process effects on the entrepreneurial orientation-sales growth rate relationship. Entrepreneurship Theory and Practice, 30(1), 57–81.doi:10.1111/j.1540-6520.2006.00110.x
29.
CrawfordE. R.LepineJ. A.RichB. L. (2010). Linking job demands and resources to employee engagement and burnout: A theoretical extension and meta-analytic test. Journal of Applied Psychology, 95(5), 834–848.doi:10.1037/a0019364
30.
DavidssonP.WiklundJ. (2001). Levels of analysis in entrepreneurship research: Current research practice and suggestions for the future. Entrepreneurship Theory and Practice, 25(4), 81–100.doi:10.1177/104225870102500406
31.
DavidssonP.GordonS. R. (2016). Much ado about nothing? The surprising persistence of nascent entrepreneurs through macroeconomic crisis. Entrepreneurship Theory and Practice, 40(4), 915–941.doi:10.1111/etap.12152
32.
DelacroixJ.SwaminathanA. (1991). Cosmetic, speculative, and adaptive organizational change in the wine industry: A longitudinal study. Administrative Science Quarterly, 36(4), 631–661.doi:10.2307/2393277
33.
DelmarF.McKelvieA.WennbergK. (2013). Untangling the relationships among growth, profitability and survival in new firms. Technovation, 33(8-9), 276–291.doi:10.1016/j.technovation.2013.02.003
34.
DenckerJ. C.GruberM.ShahS. K. (2009). Pre-entry knowledge, learning, and the survival of new firms. Organization Science, 20(3), 516–537.doi:10.1287/orsc.1080.0387
35.
EricsonR.PakesA. (1995). Markov-Perfect industry dynamics: A framework for empirical work. The Review of Economic Studies, 62(1), 53–82.doi:10.2307/2297841
36.
FarrellD.WheatC.MacC. (2016). Growth, Vitality, and Cash Flows High-Frequency Evidence from 1 Million Small Businesses: JPMorgan Chase Institute.
37.
FichmanM.LevinthalD. A. (1991). Honeymoons and the liability of adolescence: A new perspective on duration dependence in social and organizational relationships. Academy of Management Review, 16(2), 442–468.doi:10.5465/amr.1991.4278962
38.
FrankishJ. S.RobertsR. G.CoadA.SpearsT. C.StoreyD. J. (2013). Do entrepreneurs really learn? or do they just tell us that they do?Industrial and Corporate Change, 22(1), 73–106.doi:10.1093/icc/dts016
39.
FreemanJ.CarrollG. R.HannanM. T. (1983). The liability of newness: Age dependence in organizational death rates. American Sociological Review, 48(5), 692–710.doi:10.2307/2094928
40.
FridC. J.WymanD. M.CoffeyB. (2016). Effects of wealth inequality on entrepreneurship. Small Business Economics, 47(4), 895–920.doi:10.1007/s11187-016-9742-9
41.
GimenoJ.FoltaT. B.CooperA. C.WooC. Y. (1997). Survival of the fittest? Entrepreneurial human capital and the persistence of underperforming firms. Administrative Science Quarterly, 42(4), 750–783.doi:10.2307/2393656
42.
HamermeshD. S.PfannG. A. (1996). Adjustment costs in factor demand. Journal of Economic Literature, 34(3), 1264–1292.
43.
HannanM. T.FreemanJ. (1977). The population ecology of organizations. American Journal of Sociology, 82(5), 929–964.doi:10.1086/226424
44.
HannanM. T.FreemanJ. (1984). Structural inertia and organizational change. American Sociological Review, 49(2), 149–164.doi:10.2307/2095567
45.
HeaddB. (2003). Redefining business success: Distinguishing between closure and failure. Small Business Economics, 21(1), 51–61.doi:10.1023/A:1024433630958
46.
HisrichR. D.PetersM. P.ShepherdD. A. (2013). Entrepreneurship (9th ed). New York, NY: McGraw Hill.
47.
HodgsonG.HermanS.DollimoreD. (2017). Adaptability and survival in small- and medium-sized firms. Industrial and Corporate Change, 17(2).doi:10.1093/icc/dtx039
48.
HodgsonG. M. (2013). Understanding organizational evolution: Toward a research agenda using generalized Darwinism. Organization Studies, 34(7), 973–992.doi:10.1177/0170840613485855
49.
HoworthC.WestheadP. (2003). The focus of working capital management in UK small firms. Management Accounting Research, 14(2), 94–111.doi:10.1016/S1044-5005(03)00022-2
50.
HvideH. K.MøenJ. (2010). Lean and hungry or fat and content? entrepreneurs' wealth and start-up performance. Management Science, 56(8), 1242–1258.doi:10.1287/mnsc.1100.1177
51.
JenkinsA.McKelvieA. (2016). What is entrepreneurial failure? implications for future research. International Small Business Journal: Researching Entrepreneurship, 34(2), 176–188.doi:10.1177/0266242615574011
52.
JenkinsS. P. (1995). Practitioners corner: Easy estimation methods for discrete-time duration models. Oxford Bulletin of Economics and Statistics, 57(1), 129–138.
53.
JovanovicB. (1982). Selection and the evolution of industry. Econometrica, 50(3), 649–670.doi:10.2307/1912606
54.
KlotzA. C.HmieleskiK.BradleyB. H.BusenitzL. W. (2014). New venture teams: A review of the literature and roadmap for future research. Journal of Management, 40(1), 226–255.
55.
KnightF. (1921). Risk, Uncertainty and Profit. Washington, DC: Beard Books.
56.
Le MensG.HannanM. T.PólosL. (2011). Founding conditions, learning, and organizational life chances: Age dependence revisited. Administrative Science Quarterly, 56(1), 95–126.doi:10.2189/asqu.2011.56.1.095
57.
LevinthalD. A.MarinoA. (2015). Three facets of organizational adaptation: Selection, variety, and plasticity. Organization Science, 26(3), 743–755.doi:10.1287/orsc.2014.0956
58.
LowM. B.MacMillanI. C. (1988). Entrepreneurship: Past research and future challenges. Journal of Management, 14(2), 139–161.doi:10.1177/014920638801400202
59.
LundmarkE.WesteliusA. (2014). Entrepreneurship as elixir and mutagen. Entrepreneurship Theory and Practice, 38(3), 575–600.doi:10.1111/etap.12004
60.
LundmarkE.KrzeminskaA.ShepherdD. A. (2019). Images of entrepreneurship: Exploring root metaphors and expanding upon them. Entrepreneurship Theory and Practice, 43(1), 138–170.doi:10.1177/1042258717734369
61.
McKelveyB. (2004). Toward a complexity science of entrepreneurship. Journal of Business Venturing, 19(3), 313–341.doi:10.1016/S0883-9026(03)00034-X
62.
McKelvieA.WiklundJ. (2010). Advancing firm growth research: A focus on growth mode instead of growth rate. Entrepreneurship Theory and Practice, 34(2), 261–288.doi:10.1111/j.1540-6520.2010.00375.x
63.
McKelvieA.HaynieJ. M.GustavssonV. (2011). Unpacking the uncertainty construct: Implications for entrepreneurial action. Journal of Business Venturing, 26(3), 273–292.doi:10.1016/j.jbusvent.2009.10.004
64.
McKelvieA.BrattströmA.WennbergK. (2017). How young firms achieve growth: Reconciling the roles of growth motivation and innovative activities. Small Business Economics, 49(2), 273–293.doi:10.1007/s11187-017-9847-9
65.
MinnitiM.BygraveW. (2001). A dynamic model of entrepreneurial learning. Entrepreneurship Theory and Practice, 25(3), 5–16.doi:10.1177/104225870102500301
66.
NielsenK.SarasvathyS. D. (2016). A market for lemons in serial entrepreneurship? Exploring type I and type II errors in the restart decision. Academy of Management Discoveries, 2(3), 247–271.doi:10.5465/amd.2014.0108
67.
OngenaS.SmithD. C. (2000). What determines the number of bank relationships? Cross-Country evidence. Journal of Financial Intermediation, 9(1), 26–56.doi:10.1006/jfin.1999.0273
68.
ParkerS. C. (2018). The Economics of Entrepreneurship. Oxford University Press: Oxford.
69.
PaulsenN.CallanV. J.GriceT. A.RooneyD.GalloisC.JonesE.BordiaP. (2005). Job uncertainty and personal control during downsizing: A comparison of survivors and victims. Human Relations, 58(4), 463–496.doi:10.1177/0018726705055033
70.
PolitisD. (2005). The process of entrepreneurial learning: A conceptual framework. Entrepreneurship Theory and Practice, 29(4), 399–424.doi:10.1111/j.1540-6520.2005.00091.x
71.
PollardT. M. (2001). Changes in mental well-being, blood pressure and total cholesterol levels during workplace reorganization: The impact of uncertainty. Work & Stress, 15(1), 14–28.doi:10.1080/02678370110064609
72.
RochaV.CarneiroA.VarumC. A. (2015). Serial entrepreneurship, learning by doing and self-selection. International Journal of Industrial Organization, 40, 91–106.doi:10.1016/j.ijindorg.2015.04.001
73.
RotgerG. P.GørtzM.StoreyD. J. (2012). Assessing the effectiveness of guided preparation for new venture creation and performance: Theory and practice. Journal of Business Venturing, 27(4), 506–521.doi:10.1016/j.jbusvent.2012.01.003
74.
RountreeB.WestonJ.AllayannisG. (2008). Do investors value smooth performance?. Journal of Financial Economics, 90(3), 237–251.doi:10.1016/j.jfineco.2008.02.002
75.
SapienzaH. J.AutioE.GeorgeG.ZahraS. A. (2006). A capabilities perspective on the effects of early internationalization on firm survival and growth. Academy of Management Review, 31(4), 914–933.doi:10.5465/amr.2006.22527465
76.
ShaneS. (2008). The Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live By. New Haven, CT: Yale University Press.
77.
ShepherdD. A.DouglasE. J.ShanleyM. (2000). New venture survival: Ignorance, external shocks, and risk reduction strategies. Journal of Business Venturing, 15(5), 393–410.
78.
ShepherdD.WiklundJ. (2009). Are we comparing apples with apples or apples with oranges? appropriateness of knowledge accumulation across growth studies. Entrepreneurship Theory and Practice, 33(1), 105–123.doi:10.1111/j.1540-6520.2008.00282.x
79.
SimonM.HoughtonS. M.AquinoK. (2000). Cognitive biases, risk perception, and venture formation: How individuals decide to start companies. Journal of Business Venturing, 15(2), 113–134.
80.
StephanU. (2018). Entrepreneurs’ mental health and well-being: A review and research agenda. Academy of Management Perspectives, 32(3), 290–322.doi:10.5465/amp.2017.0001
81.
StinchcombeA. (1965). Social structure and organizations. InMarchJ. (Ed.), Handbook of Organizations (pp.142–193). Chicago: Rand McNally.
82.
StoreyD. J. (1994). The role of legal status in influencing bank financing and new firm growth. Applied Economics, 26(2), 129–136.doi:10.1080/00036849400000068
83.
StoreyD. J. (2011). Optimism and chance: The elephants in the entrepreneurship room. International Small Business Journal: Researching Entrepreneurship, 29(4), 303–321.doi:10.1177/0266242611403871
84.
StoreyD. J.GreeneF. J. (2010). Small Business and Entrepreneurship. London: Pearson.
85.
StoreyD. J.KeaseyK.WatsonR.WynarczykP. (1987). The Performance of Small Firms: Profits, Jobs and Failures. London: Croom Helm.
86.
ThornhillS.AmitR. (2003). Learning about failure: Bankruptcy, firm age, and the resource-based view. Organization Science, 14(5), 497–509.doi:10.1287/orsc.14.5.497.16761
87.
TörnqvistL.VartiaP.VartiaY. (1985). How should relative changes be measured?American Statistician, 39(1), 43–46.
88.
TuliK. R.BharadwajS. G.KohliA. K. (2010). Ties that bind: The impact of multiple types of ties with a customer on sales growth and sales volatility. Journal of Marketing Research, 47(1), 36–50.doi:10.1509/jmkr.47.1.36
89.
UngerJ. M.RauchA.FreseM.RosenbuschN. (2011). Human capital and entrepreneurial success: A meta-analytical review. Journal of Business Venturing, 26(3), 341–358.doi:10.1016/j.jbusvent.2009.09.004
90.
UsherJ. M.EvansM. G. (1996). Life and death along gasoline Alley: Darwinian and lamarckian processes in a differentiating population. Academy of Management Journal, 39(5), 1428–1466.
91.
VenkataramanS.Van de VenA. H.BuckeyeJ.HudsonR. (1990). Starting up in a turbulent environment: A process model of failure among firms with high customer dependence. Journal of Business Venturing, 5(5), 277–295.doi:10.1016/0883-9026(90)90006-F
92.
WennbergK.DeTienneD. R. (2014). What do we really mean when we talk about ‘exit’? A critical review of research on entrepreneurial exit. International Small Business Journal: Researching Entrepreneurship, 32(1), 4–16.doi:10.1177/0266242613517126
93.
WennbergK.DelmarF.McKelvieA. (2016). Variable risk preferences in new firm growth and survival. Journal of Business Venturing, 31(4), 408–427.doi:10.1016/j.jbusvent.2016.05.001
94.
WennbergK.WiklundJ.DeTienneD. R.CardonM. S. (2010). Reconceptualizing entrepreneurial exit: Divergent exit routes and their drivers. Journal of Business Venturing, 25(4), 361–375.doi:10.1016/j.jbusvent.2009.01.001
95.
WiklundJ. (1999). The sustainability of the entrepreneurial orientation-performance relationship. Entrepreneurship Theory and Practice, 24(1), 37–48.doi:10.1177/104225879902400103
96.
WiklundJ.BakerT.ShepherdD. (2010). The age-effect of financial indicators as buffers against the liability of newness. Journal of Business Venturing, 25(4), 423–437.doi:10.1016/j.jbusvent.2008.10.011
97.
WooldridgeJ. M. (2010). Econometric Analysis of Cross Section and Panel Data: MIT Press.
98.
WuB.KnottA. M. (2006). Entrepreneurial risk and market entry. Management Science, 52(9), 1315–1330.doi:10.1287/mnsc.1050.0543
99.
YangT.AldrichH. E. (2017). "The liability of newness" revisited: Theoretical restatement and empirical testing in emergent organizations. Social Science Research, 63, 36–53.doi:10.1016/j.ssresearch.2016.09.006
100.
Yli-RenkoH.AutioE.SapienzaH. J. (2001). Social capital, knowledge acquisition, and knowledge exploitation in young technology-based firms. Strategic Management Journal, 22(6-7), 587–613.doi:10.1002/smj.183
101.
ZahraS. A.IrelandR.HittM. (2000). International expansion by new venture firms: International diversity, mode of market entry, technological learning, and performance. Academy of Management Journal, 43(5), 925–950.
102.
ZarutskieR. E.YangT. (2015). How did young firms fare during the great recession? Evidence from the kauffman firm survey. InFinance and Economics Discussion Series 2015-085. Washington: Board of Governors of the Federal Reserve System.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
