Survival of high tech firms: The effects of diversity of productヨmarket portfolios, patents, and trademarks

High tech firms can mitigate potential risks by diversifying their product–market portfolios. A key research question is how such diversification influences firm survival. A firm exits the market in two ways, specifically, dissolution and acquisition. Here, we model how the diversity of a new firm's product–market portfolio influences the times to both types of exits. Specifically, we allow for interaction effects of the competitive intensity of a firm's environment and the diversity of a firm's product–market portfolio with its patents and trademarks. Using a competing risk hazard model, we estimate the effects of various covariates on the time to exit for 1435 US high tech firms. We observed that a more diverse product–market portfolio, in conjunction with a larger number of patents, hastens the time to a firm's exit by dissolution (9% decrease in survival duration), while in conjunction with a larger number of trademarks, portfolio diversity delays the time to exit by dissolution (12% increase). A more competitive firm environment results in a greater effect on the portfolio's diversity in delaying its exit by dissolution (7% increase). On the other hand, a diverse product–market portfolio, combined with either a larger number of patents or trademarks, hastens the firm's exit by acquisition (19% and 11% decrease respectively). New firms, particularly those in the high tech industry, face many challenges resulting in high exit rates. While firms like 3Cube, Neteos, Officeclick.com and Tower Technology failed within a few years of their incorporation, others like Microsoft, Apple, Intuit and Imation have survived and evolved into successful, large enterprises. Still others like Transarc, Intersolv and SoftSolutions were acquired by other firms (i.e., they exited through acquisition). While many factors affect the survival of new firms, their marketing decisions are crucial to their existence. As Lodish (2001) noted, " Marketing decisions are the most important decisions entrepreneurs make—and they make them very badly. " Yet, there are few research-based insights on the effects of a new firm's marketing strategies on its survival. New firms face uncertainties about the relative attractiveness of their offerings and the markets they serve and they attempt to mitigate the risks associated with those uncertainties by offering a range of products to diverse markets (Stevenson & Gumpert, 1985). However, new firms face resource constraints as they attempt to generate positive cash flows, even as they develop, commercialize and market new products. Hence, a key concern for new firms is their …