How Customer Portfolio Affects New Product Development in Technology-Based Entrepreneurial Firms

Abstract

This article focuses on how the customer portfolios of technology-based entrepreneurial firms affect new product development. Drawing on knowledge-based, resource dependence, and relational theories, the authors argue that the impact of a firm's customers on new product development depends on the size and relational embeddedness of the customer portfolio and the extent to which the firm is dependent on one or a few dominant customers for a majority of its revenues. The authors test the research model using longitudinal data on young firms operating in business-to-business markets in six technology-based industries. The results indicate that customer portfolio size has an inverse U-shaped relationship to the number of new products developed and that the more relationally embedded the customer set, the more new products the firm develops. Dependence stemming from revenue concentration has a negative impact on new product output. Furthermore, the authors find that relational embeddedness can compensate for too small of a customer portfolio and can help offset the negative effects of a highly concentrated portfolio. These results make important theoretical and empirical contributions to the new product development literature, helping uncover some of the antecedents of innovative productivity particularly relevant for young, technology-based firms. The results also contribute to the broader discourse on how customers affect new product development.