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By now it may have occurred to you that if the answer to the question
"Is it innovative?" is yes, and the answer to the question "Is
it valuable?" is also yes, that a venture is a worthwhile endeavor.
Ventures that have a positive answer to these first two questions and
related sub-questions, have economic worth -- but they still may lack
the key venture characteristic: persistence over time. In this case, these
ventures are fads.
How can you distinguish between a venture that is a fad, and one that
has the potential to last? There are three sub-questions that must
be asked to accomplish this. They are:
A.Is
it repetitive?
B.Is
there a long-term need?
C.Are
resources sufficient to sustain the venture?
SUMMARY NOTE: Strength of Persistence--Commitment Between Market and Venture
Understanding the persistence over time (sustainability) of a product
or service is a complex undertaking. Not only must the venturer
understand repetitive, long term and resource aspects of the position
that is taken in the marketplace, but the strength of the linkage between
market and venture must also be assessed. What we are really trying
to ascertain is the level of commitment that exists between market (customer)
and venture. These reciprocal commitments reduce liabilities of
newness (Stinchcombe, 1965) which in turn enhance the sustainability of
the venture. However, where commitment (which must be made in any
event) is made to an unsound position, sustainability is in doubt.
A sound position has previously been defined as repetitive purchases,
long term need, and sufficient resources to sustain the venture.
The conditions that affect the strength of the commitment, and thereby
moderate the persistence of the venture, thus become important.
At least 4 conditions influence the commitment level between market and
venture: lock-in, lock-out, lags, and inertia (Ghemawat, 1991). In some
of these conditions, the market extracts a commitment from the venture
from which it is very difficult to withdraw--therefore enhancing persistence.
This is the case with lock-in. Lock-in occurs as a result of sunk costs
that arise in connection with durable, specialized, or untradable (sticky)
assets (Ghemawat, 1991); or from non replicable assets (Grant, 1991).
For example, once the market locks Boeing into the production of the 747
with purchase orders, Boeing has such high exit costs that delivering
the orders has the lowest cost of all alternatives.
Lock-out, also extracts a commitment from the venture that benefits the
customer. Lock-out commits the venture because opportunity costs
are incurred when a course of action is taken, that commit and restrict
the company in future choices (Ghemawat, 1991).
Lags, on the other hand, extract commitments from customers that benefit
the venture. Lags caused by the lead times inherent in the acquisition
and deployment of specific strategic assets (Williamson, 1985; Ghemawat,
1991) contribute to the commitment and therefore sustainability of a venture,
since first mover advantages accrue to leaders (Rumelt, 1987).
Lastly, inertia which arises as a result of the infrastructure within
an organization (e.g. structure, attitudes, and culture) also contributes
to the persistence of a venture over time (Ghemawat, 1991). Here
the venture benefits (or suffers) from the organizational decisions and
understandings that occur at or near the time of founding. Where
inertial aspects of an organization "fit" the market--the venture
is "selected for." Where they do not--the venture is "selected
against." Either way, commitment is high, and the only way
to persist over time is to be "selected for." Hence, in
addition to determining that an entrepreneurial discovery is repetitive,
long term, and has sufficient resources, venturers may assess each of
these factors to determine the level of mutual commitment present.
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