The origins of capabilities: Resource allocation strategies, capability development, and the performance of new firms

Resource-constrained new ventures need to decide how to allocate their scarce resources to develop internal functional capabilities in order to survive and grow. Drawing on the longitudinal Kauffman Firm Survey of U.S. start-ups, we explore the performance implications of broad versus narrow scope in new firms' functional capability development and show that focus rather than breadth in capability development is conducive to higher revenue performance, although financial and knowledge resource availability moderate this relationship. Studying capability development in entrepreneurial firms informs our understanding of capability development in any firm competing under time and resource constraints.