A New Ventures Honeymoon Period: Knowledge, Resources and Real Options Reasoning

• Main Authors: CHOI, Young Rok, Stanley, M.T.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2000
• Subjects: Entrepreneurship; industrial management; partnership; success in business; management controls; performance management; Entrepreneurial and Small Business Operations; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/1326; https://doi.org/10.5465/APBPP.2000.5438631
• Institution: Singapore Management University

We propose that a real options reasoning perspective provides additional insight into the early stages of an entrepreneurial process - - a new venture's honeymoon period. The length of the honeymoon period represents the period of time leading up to the point when entrepreneurs make a decision on whether to expand the venture (call option) or abandon the new venture (put option) assuming it was not forced into an involuntary exit. Once the option to expand is exercised, the eventual survival of the venture will depend in part on how thoroughly the venture was evaluated during the honeymoon based on the accumulated knowledge of venture viability. The venture's mortality risk will also depend on the experiences of the entrepreneur, as well as external stakeholders, before the new venture is required to meet the performance standards of established firms. We argue that a new venture's mortality risk is associated with the length of its honeymoon period by impacting the new venture's: reliability and accountability, legitimacy, and commitment. We suggest that in order to improve the survival chances of new ventures, it is necessary for entrepreneurs to have a period of exploration and knowledge accumulation (honeymoon) so that they, and their stakeholders, can develop a more accurate assessment of the true value of a new opportunity as well as create the necessary capabilities to exploit this opportunity. We also suggest that entrepreneurs' psychological attachments to the new opportunity influence option strike timing and content. Implications and suggestions on empirical study are discussed.