How optimal distinctiveness affects new ventures' failure risk: A contingency perspective

Abstract

In this article, we apply the concept of optimal distinctiveness to test whether category spanning has a nonlinear effect on new ventures' risk to fail. We argue that by being optimally distinct, i.e., by attaining a level of category spanning that allows new ventures to benefit from balancing the competing needs of conformity with and differentiation from competitors, new ventures can improve their survival chances. In addition, we argue that the relevance of optimal distinctiveness varies with a venture's age and a category's density. We tested our hypotheses using data from 1668 metal bands that were founded in the United Kingdom between 1967 and 2005. The results indicate that optimal distinctiveness is relevant to new ventures' failure risk. Moreover, we show that venture age attenuates the relevance of optimal distinctiveness, whereas category density strengthens that factor's relevance.