Performance Expectations of Small Firms Considering Radical Product Innovation

Performance expectations influence business decisions such as investment decisions, and demand for supplies, particularly in small firms with limited strategic planning. Despite widespread use of performance expectations by firms and governments when making sales forecasts and economic outlooks, surprisingly little research exists about how performance expectations of small firms are formed. This paper contributes to reduce this knowledge gap. Performance expectations of small firm managers operating in markets with radical product innovations are analyzed. A model and hypotheses are proposed, which explain performance expectations of small firm managers based on firms¿ current success, radical product innovation, and variables that indicate firms¿ ability to respond to customer needs for radical product innovation. The model is tested for 200 decision-makers in a real decision-making context. The results show that performance expectations in small firms are only to a limited extent a naïve extrapolation of current success: radical product innovation and small firm¿s ability to respond to customer needs for radical product innovation influence performance expectations. Keywords: Performance Expectations, Small Firms, Radical Product Innovation, Market Orientation, Entrepreneurial Orientation