New Firms, Resource Constraints, and Balanced Resource Allocation Between Marketing and R&D

This article investigates whether new firms that are resource constrained generate more sales revenues from allocating their resources to a variety of business activities or only one business activity. We first formulate a formal resource-allocation model to guide the development of hypotheses concerning the performance of these resource allocation strategies, and then test the hypotheses on a sample of 4,928 new firms from the Kauffman Firm Survey dataset. We show that the relationships between sales revenue and each pure strategy, whereby a firm’s constrained resources are all allocated to either marketing or R&D activity, are both inverted U-shaped, which translates into the resource-constrained firm achieving the most sales revenue using a balanced strategy whereby resources are distributed between marketing and R&D activities. These findings expand the strategic management and engineering management literatures by going beyond the current predominant focus on more mature firms and on a resource-allocation balance within marketing activities or within R&D activities.